Consumer Inflation Expectations in the Eurozone Remain Largely Unchanged

[Ben Graham]

The euro showed almost no reaction to statements from the European Central Bank (ECB) that consumer inflation expectations in the eurozone remained virtually unchanged in September, confirming the regulator's plan to keep interest rates steady.

This muted market response suggests that consumers have already priced in the ECB's expected policy stance. Many analysts agree that a continued pause in the rate-cut cycle could prove productive. At the same time, the stability of inflation expectations gives the ECB some policy flexibility — allowing it to adopt not only a wait-and-see approach while monitoring global economic trends but also a more accommodative stance if necessary.

According to the published ECB survey, consumers expect prices to rise by 2.7% over the next 12 months, compared to 2.8% in August. Three-year inflation expectations remained unchanged at 2.5%, and five-year expectations stayed at 2.2%. Given that headline inflation is currently hovering around the ECB's 2% target, policymakers are likely to maintain interest rates at current levels — a view that investors appear to share.

The ECB survey also showed that consumer expectations for economic growth over the next 12 months remained stable at –1.2%, while unemployment expectations were unchanged at 10.7%. Household nominal income is expected to rise by 1.1%, while nominal spending is projected to jump to 3.5%. Consumers also expect home prices to increase by 3.5%, up slightly from 3.4%. As for mortgage interest rates, expectations for the next 12 months inched higher, rising from 4.5% to 4.6%.

Technical Outlook for EUR/USD

At the moment, buyers need to focus on breaking through the 1.1675 level — only then will a test of 1.1700 become possible. From there, the pair could climb to 1.1725, though achieving this without the support of large market participants will be quite difficult. The ultimate upward target is the 1.1755 high.

If the pair declines, I expect major buyers to become active around 1.1645. If no buying interest appears there, it may be best to wait for a retest of the 1.1620 low or consider opening long positions near 1.1580.

Technical Outlook for GBP/USD

For pound buyers, the key task is to break through the nearest resistance at 1.3330. Only this will open the way to 1.3365, above which a breakout will be rather difficult. The final target remains the 1.3400 level.

In case of a decline, bears will attempt to regain control of the 1.3290 level. If they succeed, a break below this range will deal a serious blow to bullish positions, pushing GBP/USD toward 1.3240, with the potential to reach 1.3220.

The material has been provided by InstaForex Company - www.instaforex.com