Insights 
VT 
The Eurozone’s flash headline Harmonized Index of Consumer Prices (HICP) rose by 2.1% annually in October, slightly lower than September’s 2.2%. However, core HICP increased by 2.4%, surpassing expectations of 2.3%. On a monthly basis, both headline and core HICP rose by 0.2% and 0.3%, respectively.
The EUR/USD exchange rate was around 1.1575, after stabilising from a two-week low of 1.1550. A mixed trend was observed in Euro’s performance against various currencies, with Euro showing strength against the New Zealand Dollar.
Eurozone HICP Data
The Eurozone’s preliminary HICP data anticipated a slight decline, with expectations set at 2.1% year-over-year for October. Simultaneous core inflation is expected to be 2.3%, down from 2.4% previously.
The ECB has maintained steady interest rates, reflecting a stable inflation outlook and ongoing economic growth. Market factors such as potential ECB policy decisions and mixed German Retail Sales data could impact EUR/USD. The ECB keeps its interest rate unchanged while analysts note the Eurozone’s inflation moderation.
Inflation impacts currency values, with high inflation leading to potential currency appreciation due to interest rate adjustments. Gold’s value can vary inversely with inflation rates due to interest rate influences.
Eurozone October Inflation Numbers
The October inflation numbers from the Eurozone show a mixed picture that we need to watch carefully. While the main inflation rate eased to 2.1%, the more important core inflation figure, which the European Central Bank (ECB) focuses on, unexpectedly quickened to 2.4%. This tells us that even though energy costs might be stable, underlying price pressures remain stubborn.
This situation creates a difficult path for the ECB, which has signaled it will hold interest rates steady. In contrast, recent data from the United States showed core inflation holding firm at 3.4%, suggesting the Federal Reserve may have to maintain its tighter policy for longer. This growing difference in central bank outlooks is a key reason why the EUR/USD pair is struggling to stay above 1.1550.
For derivative traders, this suggests a bearish outlook for the Euro against the US dollar in the weeks ahead. We should consider buying put options on the EUR/USD or establishing short positions in Euro futures contracts. The technical charts point to a potential slide toward the 1.1400 level if the current support at 1.1542 breaks.
Looking back, we saw a similar environment in early 2024 when persistent core inflation delayed expected rate cuts and led to a strong dollar rally. The economic data supports this view, as Eurozone third-quarter GDP growth was just confirmed at a sluggish 0.7% annually, well below the more robust growth seen in the US. This weak economic footing makes it hard for the Euro to find support.
Even with inflation concerns, gold may not be the safe haven it once was, despite holding near $4,000 an ounce. The opportunity cost of holding a non-yielding asset like gold is high when US interest rates are elevated. We should expect continued pressure on the precious metal as long as the US dollar remains strong.
