Dollar Gains Strength as Eurozone Stagflation Concerns Mount

The dollar is gaining strength ahead of US economic data releases, with oil prices remaining elevated. This has led to growing concerns about stagflation in Europe, which could weigh on the euro. The recent decline in EUR/USD has been largely driven by dollar strength rather than any fundamental deterioration in the single currency.

However, this morning's economic releases from the eurozone have reinforced concerns about stagflation. French inflation accelerated sharply to 3.0% in September, while Italian consumer inflation surged to 4.2% year-on-year. German unemployment fell by 67,000 in September, but regional inflation readings suggest that German CPI is picking up.

The eurozone's trade-off between containing inflation and supporting its economy is becoming increasingly difficult. The latest figures highlight the challenges facing policymakers as they try to balance economic growth with price stability. Against this backdrop, the dollar's broader direction remains bullish, and the near-term risks to our EUR/USD forecast remain tilted to the downside.

Technical analysis suggests that the EUR/USD has met its main downside target at around 1.1325. If it breaks below this level, it could start a new leg lower towards 1.1220. However, the pair is currently finding resistance at 1.1360 and then 1.1410.