The Euro Zone is caught in a policy tug-of-war between “easing inflation and deflation concerns”. The latest data shows that the inflation rate in September stood at 2.2%, slightly exceeding the 2% policy target. However, core inflation remains sluggish. European Central Bank (ECB) dove Peter Praet has warned that low energy prices and a strong euro may cause inflation to fall “excessively below” the target. This concern stands in contrast to the caution of hawks, making the monetary policy path more complex.

Currently, the Euro Zone economy demonstrates resilience. The recovery in manufacturing PMI and stable job market have boosted confidence in economic recovery, serving as a crucial cornerstone for the euro exchange rate. The euro has appreciated by over 13% against the U.S. dollar so far this year, once breaking through the 1.17 mark, presenting a strong pattern of “overall upward movement with oscillating adjustments”. Technical analysis indicates that the moving average is in a solid bullish alignment, but the RSI indicator is approaching the overbought zone, suggesting short-term correction pressure. The market expects a low probability of an ECB rate cut in December. The policy stability, in contrast to the Fed’s easing expectations, may continue to support the euro’s oscillation within the 1.15-1.17 range. Investors should focus on the December interest rate decision and subsequent inflation data.