Synopsis:

ING anticipates a stable trading range of 1.11-1.12 for EUR/USD in the first half of October.

Key Points:

• Recent inflation figures from France and Spain surprised on the downside, with French inflation at 1.2% and Spanish inflation at 1.5%. Notably, Spanish core CPI slowed from 2.7% to 2.4%, contrary to expectations of a re-acceleration.
• These lower inflation readings contribute to the muted reaction of the euro to China's stock rally, as the market is nearly fully pricing in a 25bp ECB rate cut in October. This is further supported by reports indicating growing pressure from dovish members within the ECB to continue easing.
• The recent off-meeting communications reveal a heightened divide between the hawkish and dovish factions of the ECB, with upcoming data likely serving as a crucial determinant for any October rate cut.

Outlook:

• Upcoming German CPI data and eurozone-wide figures are expected to influence EUR movements. Additionally, speeches from ECB President Christine Lagarde and other ECB officials this week may provide further insights.
• If the week concludes with slower-than-expected eurozone inflation and weaker US payrolls supporting the case for a 50bp Fed cut, the euro may underperform in a weak USD environment, cementing expectations of continued ECB cuts.
• A short-term rise to 1.1200 is possible if USD weakness persists, but without stronger eurozone inflation data, significant gains above this level seem unlikely.

Conclusion:

ING favors a stable trading range for EUR/USD between 1.11 and 1.12 in the early part of October, contingent on upcoming economic data.