The EUR/USD pair has strengthened, reaching its highest level in nearly a month, approximately 1.1245, during the early session on Thursday in Asia. Democrats gained control of both the Senate and House of Representatives in the US midterm elections. Eurozone inflation reaches 4% for the first time in three years. The EUR/USD pair is showing resilience as it approaches 1.1245 in the early hours of trading on Thursday in Asia. The US Dollar weakens against the Euro as the Democrats take control of the US Congress in midterm elections. Germany’s Factory Orders data for September is expected to be released later on Thursday. The Democrats secured a majority in both the US Senate and House of Representatives on Tuesday, thereby assuming control from the Republicans. This achieved major victories in several Republican strongholds for the first time in decades, as tens of millions of voters delivered a sharp rebuke to President Donald Trump. “Given the Democrats are favoured right now, our expectation is that they will take control of both the House and the Senate,” said Carol Kong. “If that pans out, the US dollar could sell off further from here, because a Democratic sweep would limit government spending over Trump’s term,” Carol added.
The Harmonised Index of Consumer Prices inflation in the Eurozone surged to 4.0% in October, marking its highest level in three years, according to a flash estimate released on Wednesday. This figure followed a rise of 3.8% in September and aligned with market expectations. This report signifies the inaugural instance of inflation in the Eurozone reaching or surpassing the 4% threshold since the September 2023 figure of 4.3%. The European Central Bank maintained its key interest rate at 2.5% last month, after implementing a 25 basis points (bps) increase in September. Markets are currently reflecting an approximate 72.0% probability of an interest rate increase at the ECB’s concluding meeting of the year in December, a slight rise from the previous 71.8% likelihood prior to the inflation report, as reported. Analysts note that the latest Eurozone data were mixed but broadly resilient, with “Eurozone October CPI … confirmed at 4.0% Y/Y (2.5% for core)” even as “final Eurozone Services and Composite PMIs were marked down slightly to 51.4 and 51.7 respectively on downward revisions to French data.” On the policy front, Scotiabank highlights a notably hawkish tone from ECB officials: “ECB Governor Nagel said Tuesday the inflation picture has worsened and that policy would probably have to be tightened in December.” They add that his colleague “Sleijpen said the Iran shock was more persistent than had been thought – although there were no second-round inflation effects visible at this point – while Governor Kocher said a December rate hike was likely unless circumstances change.”
ECB’s Nagel conveys a notably more hawkish stance than typical, reflected in an FXS Speechtracker score of 8.2 compared to a historical average of 7.0. He characterises a December rate hike as “very likely” in light of inflation pressures approaching a concerning scenario. The insistence that the ECB “can and must” prevent an energy shock from morphing into broad-based inflation underscores a strong tightening bias that should underpin the Euro on rate expectations. Nagel’s assurance regarding France’s ability to address budgetary challenges, along with the assertion that this is “not a task for monetary policy,” delineates a distinct separation between fiscal and monetary duties, thereby strengthening the argument for the ECB to maintain its emphasis on price stability. In the foreign exchange markets, the interplay of inflation exceeding expectations and a clear willingness to pursue additional tightening shifts the balance of risks in favour of a stronger Euro, particularly if forthcoming data corroborate the negative scenario narrative as we approach December.
In the daily chart, EUR/USD continues to be constrained within a broader context, remaining below the 100-day Simple Moving Average. This situation sustains a medium-term bearish outlook, notwithstanding the recent rebound. Price is hovering just below the upper Bollinger Band, while remaining above the 20-day SMA, indicating a short-term recovery within an overarching downside trend. The Relative Strength Index at 50.9 has normalised from prior oversold territory, indicating that selling pressure has diminished, yet a definitive bullish trend has yet to materialise. On the topside, immediate resistance is situated at the upper Bollinger Band near 1.1262, with a more significant barrier at the 100-day SMA at 1.1420, which is likely to restrict gains unless it is decisively reclaimed. On the downside, initial support is provided by the 20-day simple moving average near 1.1195, ahead of the lower Bollinger Band around 1.1130, where the recent recovery cycle would likely face challenges if bearish sentiment prevails.
