EUR/USD Bulls to Target $1.09 on Hotter-Than-Expected German Inflation

It is a busy day ahead for the EUR/USD. Early in the European session, prelim inflation figures for Spain will be in focus before the Eurozone Business and Consumer Survey figures.

We expect both sets of numbers to draw interest.

However, prelim German inflation numbers will likely be the key driver. Economists forecast the German annual inflation rate to soften from 8.7% to 7.3%. Cooler-than-expected numbers could allow the ECB to hit the pause button on interest rate hikes. In March, the ECB announced a shift in policy moves to a data-dependent approach.

With inflation in focus, investors should also consider ECB member speeches. Chatter from a General Council Meeting could draw interest ahead of the ECB Economic Bulletin release. ECB Economic Bulletin will share ECB views on the economic outlook and downside risks.

EUR/USD Price Action

This morning, the EUR/USD was down 0.10% to $1.08332. A mixed start to the day saw the EUR/USD rise to an early high of $1.08486 before falling into the red.

Technical Indicators

The EUR/USD needs to move through the $1.0844 pivot to target the First Major Resistance Level (R1) at $1.0871 and the Wednesday high of $1.08716. A return to $1.0850 would signal a bullish session. However, the EUR/USD needs hawkish ECB chatter and hotter-than-expected inflation numbers to support a breakout session.

In the case of an extended rally, the bulls will likely test the Second Major Resistance Level (R2) at $1.0898 and resistance at $1.09. The Third Major Resistance Level (R3) sits at $1.0952.

Failure to move through the pivot would leave the First Major Support Level (S1) at $1.0817 in play. However, barring a data-fueled sell-off, the EUR/USD pair should avoid sub-$1.075. The Second Major Support Level (S2) at $1.0790 should limit the downside. The Third Major Support Level (S3) sits at $1.0737.

Looking at the EMAs and the 4-hourly chart, the EMAs send bullish signals. The EUR/USD sits above the 50-day EMA ($1.07882). The 50-day EMA pulled away from the 100-day EMA, with the 100-day EMA widening from the 200-day EMA, delivering bullish signals.

A hold above the Major Support Levels and the 50-day EMA ($1.07882) would support a breakout from R1 ($1.0871) to give the bulls a run at R2 ($1.0898) and $1.09. However, a fall through S1 ($1.0817) would bring S2 ($1.0790) and the 50-day EMA ($1.07882) into play. A fall through the 50-day EMA would send a bearish signal.

The US Session

Looking ahead to the US session, it is a busier day on the US economic calendar. US initial jobless claims and Q4 GDP numbers will be in focus.

Barring a material revision to the Q4 GDP numbers, the initial jobless claims should influence the EUR/USD pair. Economists forecast initial jobless claims to increase from 191k to 196k. However, sub-200k would continue to reflect very tight labor market conditions.

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