EUR/USD makes a U-turn, climbing to daily highs nearby 0.9800 after hot US inflation

• EUR/USD dived to a daily low of 0.9631 as a reaction to US inflation, but stages of recovery.
• US core CPI reached a 40-year high at 6.6% YoY, as Fed odds for further tightening increase.
• US jobless claims were higher-than-estimated, flashing signs of the labor market easing.

The EUR/USD is recovering from earlier losses as inflation in the United States rose above estimates, continuing to test Fed members’ patience. Core CPI in the US jumped to a four-decade high, exceeding forecasts, cementing the case for further Fed tightening at November’s meeting. Hence, the EUR/USD is trading at 0.9775, after sliding to 0.9631 daily low, as traders reacted to US data.

US equities are trading in the green as sentiment shifted positively. The US Department of Labor reported that inflation in the US, mainly core CPI, jumped more than estimated by 6.6% YoY, topping August 6.3%. Contrarily, headline inflation edged lower from the previous month’s 8.3% to 8.2%, almost 1% lower than June’s 2022 peak.

The knee-jerk reaction sent the EUR/USD tumbling to its daily low and the S1 daily pivot, but of late, as investors’ mood changed, the shared currency is trading with solid gains of 0.81%.

At the same time, US jobs data was released. Unemployment claims for the past week ending on October 8 rose by 228K, higher than the 225K foreseen by street’s analyst, though US inflation figures overshadowed data.

Elsewhere, money market futures are repricing odds for the Fed’s next move. The CME FedWatch Tool portrays a 99% chance that the Fed will lift rates 75 bps in November and a 62.3% chance of a ¾ of a percent move for the year’s last meeting.

On the EU’s side, the Bundesbank and Belgium’s central bank chiefs, Joachim Nagel and Piere Wunsch, prompted the ECB for more interest rate hikes due to high inflation levels in the Eurozone. During the European session, German inflation figures rose as expected but persisted at high levels, as shown by HICP at 10.9%, while German CPI remained at 10%.

What to watch

The Eurozone economic calendar will feature inflation readings for France, and Spain, alongside the EU’s Trade Balance. On the US front, US Retail Sales, UoM Consumer Sentiment, and further Fed speakers will offer fresh impetus for EUR/USD traders.

EUR/USD Price Forecast

The EUR/USD daily chart shows the pair remains as downward biased, trading below the DMAs. At the time of typing, the exchange rate is testing the 20-day EMA, which, if cleared, could send the EUR/USD toward the 50-day EMA at 0.9956. Nevertheless, it should be noted that unless buyers break above the October 4 daily high at 0.9997, the downtrend is intact; otherwise, it would shift the bias to neutral downwards, opening the door for a test of the 100-day EMA at 1.0170.