• EUR/USD retraces Monday’s losses and returns to levels close to 1.1200 from 17-month lows near 1.1150.
• France’s debt and concerns about the economic impact of high Oil prices are likely to keep Euro rallies limited.
• In the US Fed’s Hammack reiterated her call for higher interest rates but investors are awaiting inflation data, due later in the week.

The Euro (EUR) shows moderate gains on Tuesday, rather due to the US Dollar’s (USD) weakness than intrinsic Euro strength. The EUR/USD pair trades at 1.1194  after bouncing from 17-month lows near 1.1150 on Monday, but the broader bearish trend remains intact, following a 3.5% decline in a five-week sell-off, amid concerns about France’s fiscal health and the economic impact of high energy prices.

France’s crisis has kept investors away from the Euro over the last few weeks, and the situation does not seem to have a clear end in sight. The country’s ballooning debt has sent borrowing costs to levels unseen since the 2009-2011 financial crisis, with the government lacking the necessary support to implement a savings plan, and student protests spreading throughout the country, reclaiming more resources for education.

Apart from that, rising tensions in the Middle East are keeping Oil prices at levels that pose a heavy burden to Eurozone economies. Brent Oil has pulled back from monthly highs above 105.00 but remains well above $100, threatening to tip the Eurozone into a stagflation cycle.

German inflation accelerated in September

Data from Germany supports those fears, as the final Harmonized Index of Consumer Prices (HICP), released earlier on Tuesday, confirmed that inflation accelerated to 0.6% in September, and 3.3% year-over-year, from  0.2% and 2.9% respectively in the previous month.

In the US, Cleveland Federal Reserve (Fed) President Beth Hammack reiterated her hawkish view earlier on Tuesday, calling for more policy restraint as inflation pressures broaden. These comments, however, failed to support the US Dollar, as markets hold a “wait-and-see” stance ahead of the release of US inflation data, eager for further insight into the timing of the Fed’s next move.

September’s US Consumer Price Index (CPI), due on Wednesday, is expected to confirm that price pressures accelerated to a 3.7% Year-on-year (Y-o-Y) rate from 3.4% in the previous month, while core inflation is forecast to show a more moderate advance to 2.5% from 2.4% in August. Producer prices, which will be released on Thursday, are expected to have grown at a steady 5.4% y-o-y rate, with the core index slowing down to 4.4% from 4.6% in August.