EURUSD reined in below 200-Day Moving Average at 1.0419 after ECB reported yesterday that it may step down pace to 50 basis points in December. Therefore, the path for a higher Euro may be blocked, economists at Société Générale report.

Core inflation probably will fall back before mid-2023

“The likelihood of a step-down to 50 bps after two successive 75 bps increases in September and October would frankly not come as a huge surprise. Inflation in the euro area may not have peaked, and we are sceptical that core inflation will fall back before mid-2023, but price expectations have drifted lower over the past week in lock step with the US.”

“The forward curve to which President Lagarde has alluded in the past to acknowledge/adjust rate expectations fell below 60 bps for the December council meeting after US CPI one week ago. Yesterday markets shaved another 4.5 bps off to 55.8 bps before the ECB headlines crossed. With the report in hand, today could bring further convergence towards 50 bps and block the path for a higher Euro.” 

“We are not rushing to take profits, but the failure of EURUSD to take out the 200DMA after a second day of trying suggests the buying has probably run its course.”