Eurozone inflation hits a record high

EUR/GBP slips despite EZ inflation reaching a new record level

Eurozone inflation rose to 9.1% YoY in August, up from 8.9% in July and above the 9% forecast. The fresh record-hit inflation print supports the case for a jumbo-sized rate hike from the ECB in the September meeting.

9.1% inflation is well ahead of the ECB’s 2% target and is being driven by soaring energy and food prices. Core inflation which excludes more volatile items such as food and fuel, rose 4.3% YoY, up from 4% in July. Perhaps more worryingly was the rise in goods inflation to 5% from 4.5%

No matter how you look at it, the outlook for the region is pretty bleak, with few signs that peak inflation is passing. Instead, the markets are bracing themselves for inflation to keep rising to double digits, possibly as soon as next month.

With German PPI at 37.2% and energy prices soaring even before the colder weather arrives, any hope of inflation cooling appears to be misplaced.

The data favours a big rate hike from the ECB as the hawkish calls from the central bank grow. Even if the ECB does hike by just 50 basis points, more rate hikes are likely across the remainder of the year as the ECB attempts to stop inflation from becoming entrenched.

Hawkishness from the ECB is already priced in. The euro is struggling to push higher amid rising concerns about the Nord Stream gas flow cut-off for three days, starting today.

European gas prices jumped over 5% after two days of declines. Comments from Germany and France that gas storage was ahead of target had pulled gas prices lower. As long as gas prices keep rising, the outlook for the eurozone is grim, and EUR will struggle to push beyond 1.010 versus the USD.

However, rising recession fears in the UK after the Ofgem energy price cap increase could keep the pound out of favour.

Where next for EUR/GBP?

EUR/GBP broke out to the upside of a triangle pattern before running into resistance at 0.86. The bullish RSI supports further gains.

Buyers will need to rise above 0.86 and 0.8680, the July high, to bring the 2022 high of 0.8640 into target.

On the flip side, sellers would look for a move below 0.85 to negate the near-term uptrend. Further support is seen at 0.8585 the 50 sma.

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

FOREX.com is a registered FCM and RFED with the CFTC and member of the National Futures Association (NFA # 0339826). Forex trading involves significant risk of loss and is not suitable for all investors. Full Disclosures and Risk Warning. Increased leverage increases risk.

GAIN Capital Group LLC (dba FOREX.com) 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA. GAIN Capital Group LLC is a wholly-owned subsidiary of StoneX Group Inc.