The Euro remains under pressure, nearing 1.1550 against the US Dollar ahead of the release of German inflation data. Despite losses, it is set for a 0.5% weekly gain due to a weaker US Dollar influenced by expectations of Federal Reserve rate cuts.

Recent Eurozone data presents a mixed outlook. Retail Sales fell short of predictions, while the Import Price Index exceeded expectations. The unemployment rate stayed steady with lower-than-anticipated job growth. France’s GDP met forecasts, but consumer inflation remained stable contrary to expectations.

Trading Subdued by External Factors

Trading has been subdued due to US Thanksgiving and a technical issue at CME Group’s centre affecting currency trade. The Euro is expected to gain guidance from Bundesbank President Joachim Nagel’s statements later. Meanwhile, the US Dollar temporarily rises with an increase in US Treasury yields, though overall on track for its poorest weekly performance since July.

German data shows retail sales declined by 0.3% against predictions of a 0.2% rise, with a year-on-year increase of 0.9%. The Import Price Index decreased by 1.4% year-on-year. In France, GDP upheld a 0.5% growth, and inflation steadied at 0.8%. German inflation is anticipated to accelerate to a 2.4% year-on-year rate for November.

The main event for us is the preliminary German inflation data, which will set the tone for the Euro into next week. With EUR/USD currently testing the 1.1550 support level, the market is at a pivotal point. The broader trend of a weaker US dollar is still the dominant theme, driven by strong expectations of a Federal Reserve rate cut.

We saw US inflation continue to cool in October 2025, with the core Personal Consumption Expenditures (PCE) index, the Fed’s preferred gauge, hitting a two-year low of 3.5%. This has cemented market bets on policy easing, with Fed funds futures now pricing in over a 90% chance of a 25 basis point rate cut in December. Consequently, any rallies in the US dollar are likely to be short-lived and seen as selling opportunities.

Market Reactions to Inflation Data

The consensus for the German year-on-year inflation figure is a slight increase to 2.4%, but we should be prepared for a surprise. We saw a similar situation back in late 2023, when a much larger-than-expected drop in inflation caught the market off guard and sent the Euro lower. Buying short-dated EUR/USD put options with a strike price near 1.1500 offers a defined-risk way to position for a repeat of that scenario.

Conversely, an inflation print that is hotter than expected would reinforce the view that the European Central Bank will hold rates for longer than the Fed. This could quickly propel the pair back toward the 1.1615 resistance level. In this case, call options targeting the October 2025 highs near 1.1670 would become an interesting play for momentum traders.

For now, the pair appears caught between the bearish European data and the decidedly weak outlook for the US dollar. One-week implied volatility has risen to 7.5%, reflecting the market’s uncertainty ahead of the German inflation release. This suggests that traders should be cautious about taking on large, unhedged positions until the data provides a clearer direction.

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