Euro rates today (31/10): Outlook Turns Decidedly Negative as Two Data Points Blow the EUR Out of the Water

The outlook for the euro has turned to the downside on Thursday with sharp declines being witnessed on the FX markets;

The euro dollar exchange rate is trading 0.6 pct lower than seen at last night's close at 1.3658.

The euro pound exchange rate is meanwhile 0.56 pct down at 0.8518.

(PS: The above are spot market quotes; your bank will affix a discretionary spread to the figures when passing on a retail FX rate. However, an independent FX provider will guarantee to undercut your bank's offer, thereby delivering up to 5% more FX. Please find out more here.)

Inflation and employment data sink the euro

Driving euro rates lower today were two data events that caught traders off guard.

Eurozone inflation has fallen drastically - year-on-year inflation for October came in at 0.7%, well below expectations for 1.1%.

This is good news for consumers but bad news for the Euro bulls as this will allow the ECB to get more accommodative in their monetary policy without risking boosting inflation.

What will surely prompt action at the ECB will be today's other important news snippet - the Eurozone unemployment rate rose to 12.2% in September, analysts had expected it to drop from a previous 12.2% to 12%.

So now markets are betting the ECB will enact further measures to prop up the Eurozone economy, thus hampering the shared currency.

This has almost been confirmed by comments made by ECB member Ewald Nowotny; in an interview with CNBC Nowotny noted that the ECB will provide more liquidity by the time the LTRO loans made in December of 2011 expire next year.

The outlook thus shifts to euro-negative in our view.

More poor Eurozone data

As if the headline employment and inflation numbers were not enough we also had poor news from Germany and France.

Today's data revealed that German Retail sales dropped -0.4% versus 0.4% eyed while French consumer spending declined by -0.1% versus forecasts of 0.2% rise

US dollar strength pervasive, outlook shifts

Also pushing the headline euro dollar exchange rate lower today is the ubiquitously strong USD.

Yesterday's FOMC statement came in less dovish than expected, and markets now seem to adopt a wait-and-see attitude.

"The EUR/USD saw a sharp reversal two days ago at the 1.3800 level and the pair may be due for a steeper correction especially in light of yesterday's Fed FOMC statement which was not as dovish as the market had hoped," says Boris Schlossberg at BK Asset Management.

According to Schlossberg the pair could correct towards in the 1.3500 level over the new few weeks.