EUR/USD to Target $1.09 on Soft German PPIs and ECB Member Chatter

It is a relatively busy day ahead for the EUR/USD. Early in the European session, the German economy will be in the spotlight, with December producer price index numbers in focus.

Following the softer wholesale inflation figures, investors will expect a similar trend to support the shift in sentiment toward the ECB monetary policy outlook. Economists forecast `the producer price index to rise by 20.8% year-over-year versus 28.2% in November.

With inflation and ECB monetary policy hot topics this week, ECB President Lagarde will also draw interest later today. Lagarde will participate in the “Global Economic Outlook: Is this the End of an Era” panel discussion at the World Economic Forum in Davos.

ECB Member Frank Elderson will speak at a European Financial Services Roundtable.

However, Lagarde and Elderson would need to shift from the recent rhetoric to move the dial. On Thursday, Lagarde reiterated previous commitments to bring inflation to target, saying,

“We shall stay the course until such a time when we have moved into restrictive territory for long enough so that we can return inflation to 2% in a timely manner.”

EUR/USD Price Action

At the time of writing, the EUR was up 0.05% to $1.08361. A mixed start to the day saw the EUR/USD fall to an early low of $1.08271 before rising to a high of $1.08370.

Technical Indicators

The EUR/USD needs to avoid a fall through the $1.0818 pivot to target the First Major Resistance Level (R1) at $1.0853. A move through the Thursday high of $1.08401 would signal a bullish session. However, the EUR/USD would need hawkish commentary from ECB chatter and hotter-than-expected stats from Germany to support a breakout.

In the case of an extended rally, the bulls will likely test the Second Major Resistance Level (R2) at $1.0876 and resistance at $1.09. The Third Major Resistance Level (R3) sits at $1.0934.

A fall through the pivot would bring the First Major Support Level (S1) at $1.0795 into play. However, barring a risk-off-fueled sell-off, the EUR/USD pair should avoid sub-$1.0750. The Second Major Support Level (S2) at $1.0760 should limit the downside.

The third Major Support Level (S3) sits at $1.0702.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bullish signal. The EUR/USD sits above the 50-day EMA ($1.07839). The 50-day EMA moved away from the 100-day EMA, with the 100-day EMA widening from the 200-day EMA, delivering bullish signals.

A hold above S1 ($1.0795) and the 50-day EMA ($1.07839) would support a breakout from R1 ($1.0853) to target R2 ($1.0876) and $1.09. However, a fall through S1 ($1.0795) and the 50-day EMA ($1.07839) would bring S2 ($1.0760) into play. A fall through the 50-day EMA would signal a shift in sentiment.

The US Session

It is a quiet day ahead on the US economic calendar, with housing sector data in focus. Elevated mortgage rates and economic uncertainty have weighed on the housing sector. Existing homeowners with pre-COVID-19 fixed mortgage rates remain reluctant to put homes on the market to avoid facing elevated mortgage rates on their new purchases.

However, recessionary jitters and low demand has contributed to a pullback in mortgage rates, raising the hope of a pickup in activity this year. With investors expecting weak numbers, today’s stats should have a muted impact on the EUR/USD.

FOMC member commentary will likely influence, however. Members Harker and Walker will speak today.