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30.09.2022: Eurozone inflation hits new record high. Outlook for EUR/USD and GBP/USD

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European currencies are trying to recoup losses against the US dollar, which has already reached its 20-year high against the basket of major currencies. In this light, investors continue buying the greenback. The recent macroeconomic data only boosted demand for the asset amid the expectations of the Fed’s radical measures aimed at lowering inflation to the target level of 2% per annum. Meanwhile, in Europe, the situation is completely different.

According to preliminary estimates, in September, the eurozone inflation advanced to 10.0% from 9.1%, which is ahead of projections of 9.7%. The fact is that the inflation forecast was the main driver of the euro, pound sterling, and some other currencies.
Since inflation in Europe continues rising and hitting new highs, the European Central Bank is likely to choose an aggressive and long-term approach to the key interest rate hike.
Meanwhile, in the US, inflation has been falling for two months in a row. It means that the Federal Reserve may gradually stop the monetary policy tightening and consider the first interest rate cut. Notably, this could happen as early as the first part of the next year. It is quite possible that the ECB will still be raising interest rates, while the Fed will have started to cut them.
In one moment, the key interest rate in Europe may even exceed the one in the US. Such a likelihood led to the US dollar depreciation. Since inflation in Europe is climbing faster than in the US, the euro has every chance to return to the parity level soon.

On the chart, we see that the euro/dollar pair is climbing from the local low of the downtrend. The euro has already gained approximately 3.2% which is about 300 pips. Although the correction is quite strong, the euro’s value is still very low.
The upward correction may allow the euro to return to the parity level. If the price consolidates above 0.9850, traders may receive a technical signal about a further rise.
The upward scenario will become possible if the price settles below 0.9750.
Recently, the market has been severely affected by speculations. That is why we may see some price swings, which may force traders to ignore technical signals.

Meanwhile, the pound/dollar pair upwardly broke the range of 1.0630/1.0930. As a result, traders get a technical signal about further growth from the low of the downward trend.
The pound sterling has recouped almost all the losses. Notably, in the mid-term and long-term periods, the British pound is still oversold. If the upward correction continues (1.0930), the price may climb to 1.1410/1.1525.
According to the alternative scenario, the pound/dollar pair may drop if it settles below 1.1000 on the daily chart.


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00:00 INTRO
00:35 EUROZONE ANNUAL INFLATION RATE
00:56 ECB’S KEY INTEREST RATE
01:08 FED’S KEY INTEREST RATE
01:59 EUR/USD
02:52 GBP/USD
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