Summary:

• Inflation rate in EMU fails to meet the forecast in September
• Higher euro could be weighing on inflation a bit
• EURUSD hovers around 1.18, a key level remains intact though

The economic outlook across the euro area seems to be uninterruptedly sturdy, one of the core element – inflation growth – remains sub-par though. Consumer prices remained unchanged at 1.5% yoy in September but fell short of the estimate at 1.6% yoy. Moreover, the core measure held onto 1.1% yoy registered in August and failed the consensus at 1.2% yoy as well. As a result, the euro marked a slight decline but recovered quite quickly.

EMU inflation falls short of estimation in September amid calmer trends elsewhere. Source: Macrobond, XTB Research

Today’s drop could be a little bit disappointing, this is especially true when we take into account that the ECB seems to be preparing for a groundbreaking announcement in the following month. Let’s remind that Mario Draghi outlined his macroeconomic vision at the latest ECB’s meeting and an announcement on tapering is the most likely scenario to occur in October.

One of the key factor which could have weighed on inflation was the euro ex-change rate which appreciated as much as 12% against the US dollar this year. On the flip side, a higher rate of the single currency might be less adverse on price dynamics going forward when domestic demand moves yet higher underpinning a possible increase of still subdued wage growth. Finally, let’s notice that a base effect could act not in favor of higher inflation at the turn of the year, hence some more sluggish prints have to be taken into account.

The EURUSD remains barely impressed with subdued inflation in September, a key level remains untouched though. Source: xStation5

Technically, the EURUSD appears to be on the way to its crucial resistance zone in the vicinity of 1.1840. Having assumed the US yields will remain bid, a possible test of the mentioned area could constitute an interesting selling opportunity.