The Euro rose against the US Dollar, with the EUR/USD pair trading around 1.1740, marking a 0.3% increase. Traders are focusing on the upcoming preliminary German inflation figures for September, which are due at 12:00 GMT on Tuesday.
Forecasts suggest an annual rise of 2.3% for the Consumer Price Index (CPI) in September, up from 2.2% in August. The Harmonised Consumer Price Index (HICP) is expected to show a 2.2% increase compared to 2.1% from the previous month.
German Inflation Insights
German inflation remains, especially in food and services. The Federal Statistical Office reported a rise in annual inflation to 2.2% in August, its highest in five months. This was mainly driven by food prices, which increased by 2.5%, with significant rises in fruit, sugar, and dairy products.
Energy price decreases softened in August, leading to a slowed decline in energy prices. Services saw a robust inflation rate of 3.1%, with transport and social services contributing. On a monthly basis, consumer prices rose by 0.1%, signalling a consistent increase.
EUR/USD has upward momentum after recent lows. The pair tests the 100-period Simple Moving Average on the 4-hour chart at 1.1751. A bullish break could lead to a short-term uptrend resumption.
With the EUR/USD trading around 1.1740, our immediate focus is on the German inflation figures due today, September 30th. These numbers are critical because they could sway the European Central Bank’s next move. A higher-than-expected inflation print might halt the ECB’s recent policy-easing stance.
We must remember the context of the last two years to understand the market’s sensitivity. After the series of rate hikes through 2023 to combat high inflation, the ECB finally began an easing cycle with rate cuts back in the summer of 2024. Another unexpected rise in inflation now could signal that those cuts were premature, forcing the bank to turn hawkish again.
Implications for Derivative Traders
The consensus forecast for a 2.3% annual rise in German CPI is a delicate number, sitting just above the ECB’s 2% target. Given that core inflation remained stubbornly above 2.5% for much of early 2025, any upside surprise will be taken seriously. Stubborn price pressures in the services sector, a trend we’ve seen for over a year, remain the primary concern.
For derivative traders, this creates an opportunity to trade the expected volatility around the announcement. We are seeing a spike in the price of short-dated options, with one-week implied volatility for EUR/USD ticking up over 8% in anticipation of a sharp move. A long straddle, buying both a call and a put option with a near-term expiry, could be a viable strategy to profit from a large price swing in either direction.
The technical picture shows the pair testing a key moving average around 1.1751. The current level is significant, as we have spent months recovering from the lower ranges seen throughout much of 2024. A failure to break higher on this inflation news could see the pair quickly retrace towards the 1.1645 lows.
The Euro is currently showing broad strength, particularly against the New Zealand Dollar. This suggests the market is already positioning for a potentially strong inflation number, which would support the Euro. Therefore, derivative plays could also be considered on currency crosses like EUR/NZD, which might see an even more pronounced reaction.
