EUR/USD and $1.10 in the Hands of Eurozone and US Inflation

Bob Mason
Published: Mar 31, 2023, 03:25 UTC

It is a busy day ahead for the EUR/USD. Expectations of softer euro area inflation will likely prevent a breakout ahead of today's economic indicators.

EUR/USD technical analysis - FX Empire.

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It is a busy day ahead for the EUR/USD. Early in the European session, German retail sales and unemployment numbers and French inflation figures will be in focus before inflation numbers for the euro area.

The German retail sales and French inflation numbers should draw more interest. However, the prelim euro area CPI report for March will be the focal point. Following softer inflation numbers from Germany, the markets expect inflation numbers to allow the ECB to join other central banks in hitting the pause button.

Economists forecast the annual inflation rate for the euro area to soften from 8.5% to 7.1%.

With inflation in focus, investors should also consider ECB member speeches. ECB President Christine Lagarde will speak today. Comments relating to inflation and ECB monetary policy will draw interest.

Earlier today, better-than-expected PMI numbers from China set the mood. The NBS Manufacturing PMI slipped from 52.6 to 51.9, while the Non-Manufacturing PMI jumped from 56.3 to 58.2. Economists forecast PMIs of 51.5 and 54.3.

EUR/USD Price Action

This morning, the EUR/USD was flat at $1.09044. A bullish start to the day saw the EUR/USD rise to an early high of $1.09257 before easing back.

EUR/USD gives up early gain.
EURUSD 310323 Daily Chart

Technical Indicators

The EUR/USD needs to avoid the $1.0885 pivot to target the First Major Resistance Level (R1) at $1.0946. A move through the Thursday high of $1.09262 would signal a bullish session. However, the EUR/USD needs hawkish ECB chatter and hotter-than-expected inflation numbers to support a pre-US session breakout.

In the case of an extended rally, the bulls will likely test the Second Major Resistance Level (R2) at $1.0988 and resistance at $1.10. The Third Major Resistance Level (R3) sits at $1.1090.

A fall through the pivot would bring the First Major Support Level (S1) at $1.0843 into play. However, barring a data-fueled sell-off, the EUR/USD pair should avoid sub-$1.08 and the Second Major Support Level (S2) at $1.0782. The Third Major Support Level (S3) sits at $1.0782.

EUR/USD resistance levels in play above the pivot.
EURUSD 310323 Hourly Chart

Looking at the EMAs and the 4-hourly chart, the EMAs send bullish signals. The EUR/USD sits above the 50-day EMA ($1.08127). The 50-day EMA pulled further away from the 100-day EMA, with the 100-day EMA widening from the 200-day EMA, delivering bullish signals.

A hold above S1 ($1.0843) and the 50-day EMA ($1.08127) would support a breakout from R1 ($1.0946) to give the bulls a run at R2 ($1.0988) and $1.10. However, a fall through S1 ($1.0843) would bring the 50-day EMA ($1.08127) and S2 ($1.0782) into play. A fall through the 50-day EMA would send a bearish signal.

EMAs are bullish.
EURUSD 310323 4-Hourly Chart

The US Session

Looking ahead to the US session, it is a busier day on the US economic calendar. Core PCE Price Index, consumer sentiment, and personal spending/income figures will draw plenty of interest.

Barring an unexpected slide in personal spending, the Core PCE Price Index should influence the EUR/USD pair. Economists forecast the Core PCE Price Index to rise by 4.7% year-over-year in February. Hotter-than-expected inflation numbers would test the market expectation of a Fed interest rate pause in February.

Investors should also monitor Fed chatter on monetary policy and the US economy.

About the Author

Bob Masonauthor

With over 20 years of experience in the finance industry, Bob has been managing regional teams across Europe and Asia and focusing on analytics across both corporate and financial institutions. Currently he is covering developments relating to the financial markets, including currencies, commodities, alternative asset classes, and global equities.

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