Euro edges higher above 1.1200, traders brace for US PPI, Retail Sales data

EUR/USD strengthens to around 1.1215 in Thursday’s Asian session.
French debt concerns might cap the upside for the Euro.
US CPI climbed 3.7% YoY in September; the core CPI rose 2.6% during the same period.

The EUR/USD pair gathers strength to near 1.1215 during the Asian trading hours on Thursday. However, the potential upside for the major pair might be limited amid lingering concerns about France’s fiscal health. All eyes will be on the US September Producer Price Index (PPI) and Retail Sales data later on Thursday.

Análisis de TMGM: noticias de mercados financieros, calendario económico e información del mercado

French bonds have been among the worst hit by a recent global selloff, with traders worried that political jostling ahead of next year’s presidential election may hinder efforts to reduce its high deficit. ECB President Christine Lagarde said that France should solve its debt woes through fiscal consolidation, damping speculation about whether the central bank might start buying French bonds to contain yields.

Across the pond, the US Consumer Price Index, a broad measure of goods and services costs across the US economy, climbed 0.6% MoM in September, putting the 12-month rate at 3.7%, the Bureau of Labor Statistics revealed on Wednesday. Economists expected respective gains of 0.6% and 3.6%.

The core CPI, stripping out volatile food and energy costs, rose 0.3% for the month and was up 2.6% on an annual basis, compared with respective estimates for 0.2% and 2.5%.

The key US inflation report has reinforced the Fed's decision to raise interest rates in the October policy meeting. Futures traders raised the odds of a rate hike when the Federal Open Market Committee next meets on October 27-28 to about 31.6%, according to the CME Group’s FedWatch tool.

San Francisco Fed President Mary Daly said on Wednesday that the central bank will probably need to increase short-term interest rates further ‌to rein in too-high inflation, but she also signaled there's no need to do so at the US central bank's October 27-28 meeting.

US CPI surprise complicates October Fed decision but tightening path seen intact

According to TD Securities, the “strong upside surprise in CPI raises concerns around inflation risks” and has made the Fed’s near-term policy decision more complex. The bank notes that “today's report makes the Fed's calculus for October more complicated following recent clear guidance about skipping a hike at the next meeting — we are now tracking a solid 0.36% m/m gain for core PCE.” Even so, TD argues that Fed leadership “appears to have decided to execute a gradual tightening cycle on the back of market pricing, through with the notable broad-based rise in yields partly doing some of the tightening for them.”

In that context, TD Securities judges that while “today's report makes the chance of an October hike higher,” they “still believe the Fed will hold and opt for December as the market is already doing some of the work for them.” The team reiterates that “we are still of the view that October will be a skip based on that pre-CPI guidance. And we continue to look for 75bps of total tightening. However, it is certainly a closer call after today's CPI data.”

Daly leans hawkish but urges patience as markets digest CPI

Daly’s speech scores 6.8/10 on the FXS Speechtracker, modestly above the 6.1/10 historical average, signaling a slightly more hawkish tone relative to the established baseline. The emphasis on gas-driven headline CPI, stubborn core inflation, and the likelihood of more rate hikes—tempered by a preference for careful timing and deliberate action—underscores a bias toward further tightening without near-term urgency. Daly’s focus on persistent above-target inflation risks, a steady labor market, and the importance of clear, accountable communication reinforces a controlled hawkish stance that markets appear to understand, as evidenced by calmer post-CPI trading in Dollar assets.

The FXS Fed Sentiment Index slipped by 0.84 points to 128.17, indicating a mild pullback in perceived hawkishness. Despite the decline, the index remains firmly above the neutral 100 mark, showing that Fed rhetoric is still in hawkish territory even as the tone shifts slightly toward patience and data dependence.

Technical Analysis: Negative outlook of EUR/USD prevails below the 100-day SMA

In the daily chart, EUR/USD keeps a bearish near-term tone as it holds below the 100-day simple moving average (SMA) and the Bollinger Bands’ middle line. The pair is attempting to stabilize after its recent slide, with the Relative Strength Index (RSI) at 36.1 recovering from oversold territory but still indicating only modest buying interest as price remains capped by the clustered resistance overhead.

On the topside, initial resistance stands at the Bollinger SMA middle band at 1.1295, ahead of the 100-day SMA at 1.1475 and the Bollinger upper band near 1.1500, which together define a broad supply zone limiting any corrective rebounds. On the downside, the Bollinger lower band at 1.1090 offers the next notable support, and a break beneath this floor would likely expose the pair to further downside continuation in the prevailing bearish trend.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Euro FAQs

What is the Euro?

The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

What is the ECB and how does it impact the Euro?

The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.

How does inflation data impact the value of the Euro?

Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.

How does economic data influence the value of the Euro?

Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.

How does the Trade Balance impact the Euro?

Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.

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