VOT Research Report
Market Analytics and Considerations
Admixture to weaker global GDP growth is projected (US downturn, Russia/Ukraine repercussions, and lower China activity).
Rate increases from the ECB will continue because the inflation is untenable.
Markets expect 50 bps in December, and today’s US CPI reading is likely to have an impact on the near-parity short-term price movement of the EUR/USD.
Admixture TO Lesser PROJECTED GLOBAL GDP GROWTH
The global economy is predicted to continue to suffer in the near future despite a reduction in supply chain bottlenecks. Global GDP has been hindered by a drop in activity in China due to its zero-COVID policy, the negative consequences of Russia’s invasion of Ukraine, and a minor recession in the US
The inflationary pressures continue to be too high.
The headline inflation rate, which is dropping as energy costs have decreased, was 7.9% according to OECD estimates of inflation (excluding Turkey), but core inflation, which excludes volatile price components like food and energy, increased to 5.3% in August and remained high. Although decreased energy prices are a good thing, they also indicate a very bleak economic future because they will result in lower future demand for energy commodities and output. By lowering purchasing power and driving up prices for businesses, high inflation continues to restrain expenditure and production.
Changes have occurred IN THE Financial Industry
As market investors altered their expectations for higher policy rates, as shown by increased sovereign debt yields in the euro area, euro assets remained volatile across the review period. Since then, rates have somewhat decreased as the economic implications of aggressive tightening start to accumulate and systemic risk originating in the UK has largely been isolated as a result of the Bank of England’s retaliatory actions and UK government policy changes of direction.
TECHNICAL ANALYSIS OF EUR/USD
The EUR/USD pair is currently retracing at 1.1000 twice as it struggles to break above parity on the daily chart with the current path. In the event of a good or negative astonishment, today’s US CPI print is expected to have an impact on the direction of the EUR/USD. The duo will likely remain virtually unchanged if the print meets expectations.
For the ECB meeting in December, 56 basis points are now factored into market prices. This week’s economic calendar includes the critical US CPI report for October, which has historically been a major factor in the movement of the EUR/USD currency pair, especially in light of the recent test of parity after several rejections. While an undershoot could sustain the recent dollar slide as markets take into account the possibility of fewer US rate hikes, higher-than-expected inflation is likely to push the pair lower.
