Short-term fluctuations in the eurozone's currency still require close scrutiny.

The euro has started to bounce back once again, with investors increasingly positive after receiving policy guidance from both the United States Federal Reserve (Fed) and the European Central Bank (ECB). The Fed policy makers' view that a rising long-term government bond yield could hinder economic growth in the United States, making it unlikely for the Fed to raise interest rates further. Luis de Guindos, ECB Vice President, stated on Monday that long-term inflation rates are expected to continue to decrease. Nevertheless, preparations must be made to cope with unforeseen circumstances.

The Producer Price Index (PPI) in the Eurozone increased by 0.6% month-on-month in August, primarily driven by the rising energy costs at 2.5%. Consumer prices remain relatively stable, which is considered a positive development.

The rising PPI numbers have also contributed to an increased short-term inflation forecast. It is expected that the fourth-quarter inflation rate may reach 5.6% year-on-year. Concerns about energy prices and geopolitical tensions in the Middle East are factors that need to be closely monitored, as they could potentially drive further increases in oil prices.

Francois Villeroy de Galhau has mentioned that the ECB's inflation target of approximately 2% by the end of 2028 remains achievable, despite recent volatility in the Israeli region. Christine Lagarde, President of the ECB, still relies on all three factors as decision-making criteria for interest rate adjustments: inflation trends, underlying inflation drivers, and the strength of monetary policy transmission. Therefore, there may not be further interest rate policy adjustments in the near future.

Retail sales in the Eurozone declined by 1.2% month-on-month in August, with sales of motor fuels dropping by 3% due to higher prices. Furthermore, sales of food, beverages, and tobacco decreased by 1.2%. Online sales also dropped by 4.5%, indicating reduced consumer spending due to efficient monetary policy transmission.

Yields on Eurozone government bonds have been decreasing across different maturities, mirroring the trend in U.S. government bonds. This is largely driven by investor expectations that the Fed will not raise interest rates this year, and the upcoming CPI numbers, which are showing positive signs.

Techical analysis data (5H)

Resistance: 0.9419, 0.9426, 0.9430

Support: 0.9407, 0.9402, 0.9395

Source: Investing.com