EUR/USD Eyes $1.08 on German Inflation and ECB Chatter

It is a relatively busy day ahead for the EUR/USD. Early in the European session, prelim January inflation figures for Germany will draw interest.

ECB President Lagarde and executive board members continue to view inflation as too high, supporting the hawkish policy outlook for the coming months.

Economists forecast Germany’s annual inflation rate to accelerate from 8.6% to 8.9%, with consumer prices to rise by 0.8% in January. Consumer prices fell by 0.8% in December. However, the annual inflation rate may need to edge toward 10% to shift market sentiment toward ECB monetary policy, with the markets expecting a 50-basis point hike in March,

With inflation the hot topic of the day, investors need to consider ECB member speeches. ECB member Luis de Guindos will speak later today. The talk of lifting rates more aggressively would move the dial.

EUR/USD Price Action

At the time of writing, the EUR/USD was up 0.03% to $1.07128. A mixed start to the day saw the EUR/USD rise to an early high of $1.07162 before easing back.

Technical Indicators

The EUR/USD needs to move through the $1.0727 pivot to target the First Major Resistance Level (R1) at $1.0744 and the Wednesday high of $1.07607. A return to $1.0750 would signal a bullish session. However, the EUR/USD would need the stats and ECB member 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 $1.0778. The Third Major Resistance Level (R3) sits at $1.0829.

Failure to move through the pivot would leave the First Major Support Level (S1) at $1.0693 in play. However, barring a risk-off-fueled sell-off, the EUR/USD pair should avoid sub-$1.0650. The Second Major Support Level (S2) at $1.0675 should limit the downside.

The third Major Support Level (S3) sits at $1.0624.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bearish signal. The EUR/USD sits below the 200-day EMA ($1.07500). The 50-day EMA pulled back from the 100-day EMA, with the 100-day EMA narrowing to the 200-day EMA, delivering bearish signals.

A move through R1 (1.0744) and the 200-day EMA ($1.07500) would support a run at R2 ($1.0778). However, failure to move through R1 ($1.0744) and the 200-day EMA ($1.07500) would leave S1 ($1.0693) in play.

The US Session

It is a quiet day on the US economic calendar. US jobless claims will be in the spotlight early in the US session. Following the hotter-than-expected US Jobs Report, a further decline in initial jobless claims would question Fed Chair Powell’s policy stance.