EUR/USD avant l'IPC de la zone euro du 18 novembre

On 18 November, Eurostat will publish the final October inflation results.

The early estimate showed inflation at 4.0% over the year, up 0.4% on the month, with core inflation at 2.5%. Final numbers rarely differ much from the early estimate, so the headline probably won’t surprise anyone. What could matter is core inflation.

Markets already expect the ECB to raise rates in December, with 90% chance priced in, same with a Fed hike in December about 76% priced in after Friday’s strong jobs report. Both banks are expected to hike, so interest rates aren’t pulling the pair either way.

Now the real problem is France - borrowing costs are significantly higher than in Germany, and its parliament has just rejected part of next year's budget. Full budget vote is on 17 November, the day before the inflation report.

Where the price stands. The euro gave back all its gains from the US midterm elections. It’s now sitting just above its low for the year, around 1.1105. If it falls below that, the next stops are about 1.1032 and then 1.0905. On the upside, the first hurdles are about 1.1276 and 1.1355. The dollar is also getting stronger, and Citi is advising clients to bet against any euro bounce.

Three ways it could play out 

• Numbers match the early estimate (about 55%): Not much happens. Rallies toward 1.1275–1.13 look like better places to sell than buy. If the price closes above 1.1365, that view is wrong.
• Core inflation comes in hotter (about 25%): Traders bet on more ECB hikes next year, and the euro might rise toward 1.1325. But the dollar is strong enough that this probably fades, so it’s more of a selling chance than a trend change.
• Softer numbers and a messy French vote (about 20%): The euro could close below 1.1105 and slide toward 1.1032, then 1.0905. This is the only case where a big move looks likely.

How to approach it

Wait to see the US inflation report on Tuesday and the French vote first, they’ll set the mood for the dollar and the euro. We lean slightly bearish on EUR/USD, so we’d rather sell when the price bounces up, and set a stop-loss. The other option is to wait until the euro actually drops below 1.1105 and stays there, instead of betting on it before it happens.