The Euro is under pressure, trading close to 1.1550 against the US Dollar as we anticipate German inflation data. Even with some losses, it is positioned to gain 0.5% this week because of a weaker US Dollar, driven by expectations of Federal Reserve rate cuts. Recent data from the Eurozone shows mixed results. Retail Sales were lower than expected, whereas the Import Price Index was better than forecasted. The unemployment rate held steady, but job growth was below expectations. In France, GDP growth matched predictions, although consumer inflation remained stable, contrary to what many anticipated.

Trading Affected by External Factors

Trading activity has slowed due to the US Thanksgiving holiday and a technical issue at CME Group affecting currency transactions. Later today, guidance may come from Bundesbank President Joachim Nagel’s remarks. The US Dollar temporarily gained ground with rising US Treasury yields but is still headed for its worst weekly performance since July. German data showed retail sales dropped by 0.3%, against predictions of a 0.2% rise, with a year-on-year increase of 0.9%. The Import Price Index fell by 1.4% over the year. In France, GDP remained steady at 0.5% growth, while inflation stabilized at 0.8%. For November, German inflation is expected to rise to a 2.4% year-on-year rate. The key focus is the preliminary German inflation data, which will influence the Euro as we head into next week. With EUR/USD testing the 1.1550 support, the market is at a crucial juncture. The ongoing trend shows a weaker US Dollar, fueled by strong expectations for a Federal Reserve rate cut. In October 2025, US inflation continued to ease, with the core Personal Consumption Expenditures (PCE) index, the Fed’s main measure, dipping to a two-year low of 3.5%. This has solidified market expectations for looser policy, with Fed funds futures now indicating over a 90% chance of a 25 basis point rate cut in December. Any rises in the US Dollar are likely to be temporary and viewed as selling opportunities.

Market Reactions to Inflation Data

The forecast for German year-on-year inflation is a slight uptick to 2.4%, but surprises are possible. A similar surprise occurred in late 2023 when inflation dropped unexpectedly, causing the Euro to fall. Buying short-dated EUR/USD put options with a strike price near 1.1500 could be a low-risk strategy in case of a repeat event. On the other hand, if inflation comes in hotter than expected, it could suggest that the European Central Bank will keep rates higher for longer than the Fed, pushing the pair back toward the 1.1615 resistance level. In this scenario, call options targeting the October 2025 highs around 1.1670 might be appealing for momentum traders. Currently, the pair is caught between the negative European data and the weak outlook for the US Dollar. One-week implied volatility has risen to 7.5%, indicating market uncertainty ahead of the German inflation release. Traders should exercise caution and avoid taking on large, unhedged positions until the data provides clearer direction. Create your live VT Markets account and start trading now.

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