Final Euro Area headline inflation hit an all-time high of 10.6% in October, a fraction lower than the preliminary estimate of 10.7%. According to data from Eurostat, energy had the highest annual rate in October at 41.5% (compared with 40.7% in September) followed by food, alcohol, and tobacco at 13.1% (11.8% in September), with non-energy industrial goods at 6.1% (compared to 5.5% in September).

The recent rally in EUR/USD has come to a halt as the post-CPI move fades. While market expectations of paring back of US rate hikes grow, yields in the ultra-short end of the US bond market remain firm. The one-year US Treasury bill yields around 4.66%, a premium in excess of 250 basis points over the one-year German bond. This interest rate differential will continue to limit any upside in EUR/USD in the short term.
 

German/US One-year Bond Yields Remain Far Apart

(Click on image to enlarge)

Speeches today by Fed members Michelle Bowman and Philip Jefferson, at 14:15 GMT and 15:40 GMT respectively, will need to be watched closely for any clues about future US monetary policy.

For all market-moving economic releases and events, see the DailyFX Calendar

EUR/USD currently changes hands around 1.0335 after spiking to 1.0480 on Tuesday after the September PPI report showed producer inflation slowing. The break higher took the pair through both horizontal resistance at 1.0365 and the 200-day moving average. However, this move has been short-lived and the spot EUR/USD is back below both. The 200-day sma has not been pressured since mid-June 2021. A short-term series of higher lows remain in place and should support the pair around 1.0280.
 

EUR/USD Daily Price Chart

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Chart via TradingView

Retail trader data show 1.29% of traders are net-long with the ratio of traders short to long at 1.42 to 1. The number of traders net-long is 7.67% higher than yesterday and 14.93% lower than last week, while the number of traders net-short is 8.07% higher than yesterday and 6.84% higher than last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EUR/USD prices may continue to rise. Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger EUR/USD-bullish contrarian trading bias.

What is your view on the EURO – bullish or bearish?

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