The euro rose more than 0.6% against the dollar on Wednesday and approached four-week highs. There are two reasons: inflation in the eurozone accelerated to a three-year peak, and the Democrats won the US midterm congressional elections.
HICP is the eurozone's harmonized index of consumer prices. The ECB uses it to check how fast prices are rising and to decide what to do with the rate. The higher the inflation, the higher the chance the rate is kept tight, and the more expensive the currency.
For a trader, this means movement in the market's most liquid pair and a shift in sentiment on the dollar right after the political news.
What did inflation show?
The preliminary HICP estimate for October was released at 13:00 Moscow time.
- 4.0% year on year - versus 3.8% in September, the consensus was 4%
- A three-year high - by annual price growth rate
- 0.4% for the month - a slowdown from 0.6%
- Energy - the main contribution to price growth
- Services - the HCOB business activity index for October was revised downward
Effect for the euro. The figures add arguments for those at the ECB who insist on keeping policy tight in the coming months. Hence the demand for the euro.
Why did the dollar fall?
The second half of the story is the November 3 elections. The Democrats gained control of both chambers of Congress; even traditionally Republican Kansas and Texas went to them.
The market is pricing in these consequences:
- AI regulation. New rules for the artificial intelligence sector are expected.
- Restrictions on data centers. Construction of new capacity is in question.
- Tech stocks. The sector is under pressure on these expectations.
- US Treasuries. Demand for Treasuries rose.
Rabobank's logic. Less fiscal stimulus - less inflation - lower Treasury yields. That's a minus for the dollar.
Where is the pair technically?
On the chart, the pair bounced from the 1.1100 area to 1.1260-1.1280.
Key point: the price is right at the upper boundary of the last four weeks' range. Next is either a breakout upward or a pullback into the corridor.
What's next?
The next dollar figure is already today. That's ADP employment for October, consensus 69K versus 90K in September.
ADP is a private estimate of US hiring, released before the official statistics.
- Weaker than consensus - another argument against the dollar
- Stronger than consensus - a chance for the euro to pull back from the upper boundary
- Publication dates - see the economic calendar
If you trade such data releases, it's worth choosing a challenge for the major pairs in advance.
Did you trade EUR/USD this morning?
You sat in the pair from the open and worked the spike on the inflation figures - a familiar task. Only the account you do it with lives by its own rules. Somewhere the window around the statistics release is fully open. Somewhere a trade in those minutes wipes out the entire selection, and somewhere leverage is cut for a quarter of an hour. Those clauses are read in a calm market, not at 13:00. The selection parameters display the restrictions on the major pairs right away.