Fundamental analysis

Inflation in the eurozone jumped to 10.7%, while GDP grew by only 0.2%

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The euro reacted negatively to the news that inflation in the eurozone exceeded 10% in October this year, highlighting the severity of the cost of living crisis in the region and increasing pressure on the European Central Bank. Preliminary data from the European Statistical Office, published on Monday, showed that overall inflation last month was as much as 10.7% year-on-year, the highest monthly figure since the formation of the eurozone.

EU member states are currently facing very high prices, especially for energy and food, which have been observed over the past 12 months.

Given that this is a common indicator for all countries, the situation is no better: in Italy, overall inflation was higher than analysts’ expectations and amounted to 12.8% year-on-year. Germany also said that the consumer price index jumped to 11.6%, and the indicator reached 7.1% in France. According to experts, different values reflect the measures taken by governments and the level of dependence of these countries on Russian hydrocarbons.

Last week, the European Central Bank, whose main goal is to control inflation, confirmed that it plans to continue raising interest rates in the coming months. However, it immediately made a reservation that final decisions would be made on the available fresh statistics. The statement also says that the regulator has made “significant progress” in normalizing rates in the region but expects further increases to ensure a timely return of inflation to its medium-term inflation target of 2%. Following the meeting, the ECB raised rates by 75 basis points for the second time.

As for the data on the growth rates of the eurozone economy itself, the GDP (gross domestic product) indicator in October was only 0.2% – this is after an increase of 0.8% in the second quarter. The bloc has managed to avoid a recession, but an economic downturn is unlikely to be prevented.

As for the technical picture of EURUSD, the bears actively counterattacked, which led to a new wave of decline. For growth, it is necessary to return the pair above 0.9950, which will spur the trading instrument to grow between 1.0000 and 1.0040. However, the upward prospects will depend entirely on the further reaction of buyers of risky assets to the incoming news – especially at the Fed meeting. The parity breakthrough has taken place, which will keep the market at the mercy of sellers for the time being. An exit below 0.9910 will return pressure on the trading instrument and push the euro to a minimum of 0.9870, which will only worsen the situation of buyers of risky assets in the market. Having missed 0.9870, it will be possible to wait for the lows to update around 0.9820 and 0.9750.

As for the technical picture of GBPUSD, the pound remains within the channel, ignoring everything around it. Now buyers will focus on protecting the 1.1500 support and breaking the 1.1600 resistance, limiting the upward potential of the pair. Only a breakthrough of 1.1600 will return the prospects for recovery to the area of 1.1690, after which it will be possible to talk about a sharper pound increase up to 1.1730 and 1.1780. It is possible to talk about the return of pressure on the trading instrument after the bears take control of 1.1500. This will blow the bulls’ positions and completely negate the short-term prospects of the bull market. A break of 1.1500 will push GBPUSD back to 1.1430 and 1.1345.

The material has been provided by InstaForex Company –