Can we still count on Soft Landing?
Last week ended with US consumer price index data. On Friday, the US September core PCE price index increased by 0.5%, in line with market expectations, while the previous month was revised down to 0.5% from 0.6% in the initial report, but annually increased by 5.1%, slightly lower than 5.2% market expectations. This is while personal spending in the United States increased by 0.6% in September, exceeding 0.4% market expectations.
After the US, it was the European turn to remember the warnings again by surging inflation to a new record high. These numbers tell us that ECB would also be unable to ease its tightening policies anytime soon.
According to the Eurostat, prices rose in the eurozone raised by 1.5% in October to increase the annual rate of inflation up to 10.7%, while the market was expecting a 10.2% rise. Excluding food and energy, core price inflation accelerated to 5.0% annually, which is twice the ECB’s target. In line with inflation numbers, Eurostat published the GDP numbers as well. Gross Domestic Product in the third quarter rapidly fell to just 0.2% increase from 0.8% in the second quarter.
With these data, market participants expect the Fed to raise interest rates by 75 basis points this week, but the question is about December and next January meetings. If they slow down to a 50-basis point rate hike, maybe inflation cannot ease in the short term, while continuing tightening policies also can slow down economic growth towards recession.
While last week ECB raised the rates by 75 basis points, European Central Bank member Nott after today`s inflation numbers said that ECB would raise rates between 50 and 75 basis points and could continue with a sharp 75 basis-point hike in December.
As these data confirm that the depth of the Eurozone economic recession is much greater than previous estimates, pressure on Euro increased, and along with further strengthening of the US dollar, EURUSD in a clear downtrend breached the first support at 0.99, and now moving deeper towards next resistance at 0.9850. As we can see in the bellow H1 chart, in the short-term, technically it remains bearish, confirming the fundamental data, at least until publishing the Fed announcement on Wednesday, November second evening.
