German CPI Boosts EUR/USD Ahead of NFP and the ECB’s Christine Lagarde

EUR/USD ANALYSIS

• German CPI underlines persistent inflation demands.
• US NFP and ECB President Christine Lagarde to come later today.
• Cautious approach from EUR/USD participants ahead of key data.

EURO FUNDAMENTAL BACKDROP

The euro gathered some support this Friday morning with a marginally weaker USD and better than expected German CPI data (see economic calendar below). Although actual numbers printed in line with forecasts, the 8.7% figure highlights the elevated and stubborn inflationary pressures in Germany. With Germany being the largest economy within the eurozone, the inflation release acts as a proxy for the broader region, adding to hawkish sentiments from the European Central Bank (ECB).

EUR/USD ECONOMIC CALENDAR

Source: DailyFX economic calendar

The focus for today is firmly on the US Non-Farm Payroll (NFP) release with projections at 205K. If the last 12 months is anything to go by, we could easily see a figure higher than this, leaving room for more hawkish repricing and possibly cementing a 50bps rate hike in the Fed’s upcoming meeting – currently priced around 36.60bps showing no distinct bias just yet (see table below). While Fed pricing remains in a state of indecision, the ECB’s March meeting looks to be a sure thing at 50bps, placing added interest on the upcoming NFP report. Two other key metrics of the NFP report will come via the unemployment and wage figures with wages being a key contributor to high inflation through the services sector.

To close out the trading session from a EUR/USD perspective, the ECB’s Christine Lagarde is scheduled to speak and may look to reiterate the need to quell inflation after German data today.

FEDERAL RESERVE INTEREST RATE PROBABILITIES

Source: Refinitiv

ECB INTEREST RATE PROBABILITIES

Source: Refinitiv

TECHNICAL ANALYSIS

EUR/USD DAILY CHART

Chart prepared by Warren Venketas, IG

Daily EUR/USD price action shows no breach above the June 2022 swing high at 1.0615 just yet as markets prepare for NFP data. Between now and then I do not expect major moves and is likely to remain rangebound. A miss on the NFP release could see the pair testing 1.0500 once more while anything higher may bring into consideration the 1.0700 psychological resistance level.

Resistance levels:

Support levels:

IG CLIENT SENTIMENT DATA: BULLISH

IGCS shows retail traders are currently LONG on EUR/USD, with 55% of traders currently holding long positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment; however, due to recent changes in long and short-term we arrive at short-term upside disposition.

Contact and followWarrenon Twitter:@WVenketas