The euro and the pound continued to rally against the dollar, even though today's European data were mixed and the UK released nothing. The main support for both currencies came from a weaker dollar after Federal Reserve chair Kevin Warsh's speech. He gave the market neither a clear signal for further hikes nor a hint of a pause, leaving the dollar without a fresh reason to strengthen.

Starting with the eurozone. Final September CPI came in at 3.8% year-on-year — exactly in line with the preliminary estimate and consensus, so there was no revision. It is up from 3.2% in August, so the acceleration remains noticeable. Core CPI (excluding energy and food) stayed at the expected 2.5%, up from 2.4% previously. Core shows the persistent part of inflation — the portion not explained by oil spikes — so even a small rise matters for the European Central Bank. The deposit rate is 2.50%, the next meeting is October 29, and markets expect a final hike to 2.75% in December.

Trade data disappointed. In August, the eurozone recorded a €6.8bn goods deficit versus an expected €4.5bn surplus (July was a €1.4bn surplus). The trade balance measures the difference between goods sold abroad and goods purchased; a switch from surplus to deficit means countries buy more than they sell and foreigners need fewer euros to pay for eurozone goods. In Italy, September CPI was as expected at 4.2% y/y and 0.7% m/m, while the Italian goods surplus narrowed to €1.77bn from €8.24bn (forecast €7.50bn). Eurozone industrial production in August fell 0.5% m/m versus 0.0% expected — the trade data confirmed a weakening real sector.

But the market focused on something else. Elevated inflation remains a problem for the ECB and supports the case for tight policy. Christine Lagarde has warned that high energy prices will keep inflation above target into early 2027, and September's numbers give her no reason to change that view. Frankly, it is puzzling that the euro is rising despite a worsening trade balance — to me that looks more like dollar weakness after Warsh's remarks than strength in the European economy.

No UK releases were published today, so the pound could rally unbothered. The lack of news helped it. Yesterday's UK figures were strong: August GDP rose 0.1% m/m versus -0.1% expected, and industrial production jumped 0.8% m/m versus -0.1% expected, which supports sterling's recovery after its recent prolonged decline.

With few major events in the second half of the day, market attention will shift to US industrial data: industrial production, manufacturing output, and capacity utilization. The first two show how much factories, mines and power plants actually produced. Capacity utilization answers the simple question of what share of their capacity firms are using. High utilization can signal overheating and upward pressure on prices; low utilization points to weak demand. In dollar terms, these are secondary releases and unlikely to give the greenback a big boost. I expect risk-asset upside to continue unless these data surprise strongly.

Momentum

For the euro, the range between breakout points is 41 pips, from 1.1234 to 1.1275. Price at 1.1268 sits in its upper part — 34 pips above the lower boundary and only 7 pips below the upper. The euro is rising almost without pause today, and the upper level is very close. If price convincingly closes above 1.1275, the next targets will be 1.1310 and 1.1336. For such a move, the dollar must remain weak, and US industrial data should not revive it. I think this scenario is the main one for today, but don't rush entries: seven pips is very small, and price may oscillate at the level several times before deciding where to go. If price drops below 1.1234 and holds there, targets will be 1.1193 and 1.1156 — which would require a noticeable dollar reversal, and so far there is no sign of that.

For the pound, the range is narrower, 34 pips from 1.3307 to 1.3341, but price at 1.3344 stands 3 pips above the upper boundary. The pound has effectively already approached a breakout. But three pips is normal market noise, and until price convincingly closes above 1.3341, this cannot be called a breakout. If a close occurs, targets will be 1.3368 and 1.3397. Support for such a move remains yesterday's strong UK data and a weak dollar. If price returns below 1.3341 and then falls under 1.3307, targets will be 1.3273 and 1.3233 — but that reversal would require very strong US prints. Remember, Friday is near, and some buyers may take profits before the weekend, pushing price back into the range.

Mean Reversion

For the euro, two reversion levels stand out: 1.1276 and 1.1242. The upper one sits only one pip above the breakout point at 1.1275, so special caution is required. One pip is even less than normal market noise, and on the first touch you cannot tell whether a true breakout has started or the price merely poked the boundary. If price clears 1.1276, reaches 1.1310, and convincingly closes above it, that is a confirmed breakout and selling is not allowed. If instead price rises slightly above 1.1275 and quickly returns below, I would consider selling with a stop above 1.1310. It is wiser to skip the first reaction in this zone. The lower level 1.1242 lies 8 pips above the 1.1234 breakout point and 26 pips below the current price. If price pulls back to 1.1242 and quickly reverses up, buyers have a rebound idea with a stop below 1.1234. But if price moves below 1.1234 and closes there, buying is not allowed.

For the pound, the lower reversion level 1.3317 sits 10 pips above the 1.3307 breakout point and 24 pips below the upside breakout point at 1.3341. If price returns to 1.3317 after a rise and quickly bounces up, buyers have an idea to continue the move with a stop below 1.3307. The distance here is larger than for the euro, so it is easier to distinguish a genuine rebound from the start of a real decline. But if price breaks 1.3307 and closes convincingly below it, buying there is not allowed. I am not covering an upper reversion level for the pound this time because the value provided in the data appears to be erroneous.