EUR/USD faces renewed downside risks as markets await U.S. inflation report

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U.S. inflation tests EUR/USD support levels

U.S. inflation data could reshape Fed expectations

⠀The main event on October 14 will be the release of the U.S. Consumer Price Index for September. Consensus forecasts suggest that headline inflation will accelerate from 3.4% to 3.6% year-over-year, while core CPI could rise from 2.4% to 2.5%. Particular attention will be paid to monthly price changes and the extent to which higher energy costs are spreading to services and other components of the consumer basket. Tomorrow, October 15, data on producer prices, retail sales, and initial jobless claims will be released.⠀These two days could therefore significantly change market assessments of inflation risks and the resilience of consumer demand in the U.S. economy. Stronger CPI figures could restore the dollar's upward momentum, while slower core inflation would create conditions for a recovery in EUR/USD.⠀

Treasury yields maintain dollar advantage

⠀The bond market is showing some easing of pressure following the sharp rise in yields in early October. The yield on 10-year U.S. Treasuries has retreated to approximately 5.19–5.22%, while the 30-year yield has fallen to 5.55–5.56%, amid a correction in oil prices and renewed demand for government bonds.⠀The U.S. Dollar Index (DXY) has declined to approximately 102.12 after reaching an 18-month high near 102.61. However, the absolute level of U.S. yields remains elevated, supporting the attractiveness of dollar-denominated assets. The Fed maintains its target interest rate range at 3.75–4.00%, while the market estimates the probability of no change at the October 28 meeting at approximately 78–81%. At the same time, the possibility of further monetary tightening before the end of the year cannot be completely ruled out, particularly if inflation continues to exceed expectations.⠀The ECB faces a somewhat different situation: the deposit rate stands at 2.50%, and the market largely expects it to remain unchanged at the October 29 meeting. Preliminary data showed that eurozone inflation accelerated to 3.8% in September, primarily due to higher energy prices, while core inflation remains around 2.5%. This limits the scope for monetary easing but simultaneously increases risks to economic growth.⠀The French bond market remains an additional source of uncertainty, with the yield on 10-year government bonds standing at around 4.8%, while persistent budget problems continue to support an elevated risk premium. Despite some decline in yields on both sides of the Atlantic, the interest rate differential between the Fed and the ECB continues to work against the euro.⠀

Resistance levels define short-term outlook

⠀Thus, another EUR/USD rebound is limited by resistance around 1.1210, and selling from this level could push the pair back toward support at 1.1170–1.1150. A break above resistance would lead to a rise toward 1.1230–1.1250, where selling opportunities may also emerge. The release of U.S. inflation data, as I warned in EUR/USD remains under pressure as U.S. inflation data approaches, could trigger either a rise or a decline in the pair, but even in the event of a rally, selling opportunities may still be considered.

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