EUR/USD and a Return to Sub-$1.05 in the Hands of US Inflation

It is a busy day ahead for the EUR/USD. On the economic data front, second estimate Q4 GDP numbers for France and Germany will be in focus. Revisions from prelim figures would move the dial. However, German consumer confidence may have more influence. Economists forecast the GfK German Consumer Climate Indicator to rise from -33.9 to -30.4.

In the latest ECB Economic Bulletin, the ECB noted that rising wage growth and declining energy price inflation should ease the loss of purchasing power and support consumption. Consumer confidence would need to improve to support the ECB outlook on consumption.

Service sector PMI numbers for February supported the ECB’s outlook, with the Eurozone Services PMI up from 50.8 to 53.0.

However, with the ECB set on delivering a 50-basis point interest rate hike in March, today’s stats need to surprise to shift market expectations.

After the latest round of euro area stats, investors need to monitor ECB member speeches. ECB President Lagarde and Mr. Panetta will attend the G20 Finance Ministers and Central Bank Governors meeting. We expect comments from the G20 to draw plenty of interest. However, investors need guidance beyond March to influence the EUR/USD.

EUR/USD Price Action

At the time of writing, the EUR/USD was up 0.05% to $1.05996. A mixed morning saw the EUR/USD fall to an early low of $1.05913 before rising to a high of $1.06143.

Technical Indicators

The EUR/USD needs to avoid a fall through the $1.0600 pivot to target the First Major Resistance Level (R1) at $1.0623 and the Thursday high of $1.06278. A return to $1.0620 would signal a bullish session. However, the EUR/USD would need today’s stats and the ECB chatter to support a breakout session.

In the case of an extended rally, the bulls will likely test the Second Major Resistance Level (R2) at $1.0651. The Third Major Resistance Level (R3) sits at $1.0701.

A fall through the pivot would bring the First Major Support Level (S1) at $1.0572 into play. However, barring a data-fueled sell-off, the EUR/USD pair should avoid sub-$1.05. The Second Major Support Level (S2) at $1.0549 should limit the downside. The Third Major Support Level (S3) sits at $1.0498.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bearish signal. The EUR/USD sits below the 50-day EMA ($1.06626). The 50-day EMA fell back from the 200-day EMA, with the 100-day EMA pulling back from the 200-day EMA, delivering bearish signals.

A move through R1 ($1.0621) would give the bulls a run at R2 ($1.0651) and the 50-day EMA ($1.06626). A move through the 50-day EMA would send a bullish signal. However, failure to move through the 50-day EMA ($1.06626) would leave the Major Support Levels in play.

The US Session

It is a busy day on the US economic calendar. Personal income, spending, and inflation will be in focus. An unexpected rise in the Core PCE Price Index would fuel bets of a more hawkish Fed. Economists forecast the Core PCE Price Index to rise by 4.3% year-over-year in January. The Index was up 4.4% in December.

Later in the session, consumer sentiment and Fed chatter will also draw interest. FOMC member Loretta Mester will deliver a post-stats speech.