EURUSD Rises Following Fresh German Inflation – To Follow PCE?

EURUSD – Talking points

  • EURUSD broke out of the wedge and fell to the first test of 0.9800
  • German inflation data hits double digits, ECB rate hike bets grow
  • US PCE data crosses the August lines

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Bulls were able to build on Wednesday’s impressive rally as US dollar weakness pushed EURUSD around 0.9800 on Thursday. With the euro still fundamentally challenged, month-end flows of the battered currency could prove useful as traders wrap up a tumultuous quarter. As headlines continue to swirl around the damage to the Nord Stream pipeline, the sabotage theory continues to gain steam.

This morning German inflation data hit double digits after jumping 10% on a YOY basis. The September reading increased from the 7.9% publication in August, which may be the heartbeat of the European Union away from high inflation. In Germany, energy and food prices continued to rise, up 43.9% and 18.7% YoY.

While these data points are initial readings, they certainly ring alarm bells at the ECB. After the release of the data, traders rushed in at higher terminal prices for the European Central Bank. These higher inflationary prints can only benefit the euro in the short term, as the focus will soon shift to the slowdown in growth in the continent due to restrictive monetary policy and war.

European economic calendar

Courtesy of DailyFX Economics Calendar

As mentioned earlier, when we draw the curtains on the historical quarter, the EURUSD rate has increased in the last few days. Wednesday’s strong meltdown was higher for risk assets, with EURUSD making a 2.25% intraday move after breaking out of a falling wedge formation. Following a brief overnight pullback, EURUSD had another monster session trading around 170 pips. Volatility is likely to linger into Friday’s session as traders prepare for the crucial PCE report. Does the report reflect the August CPI surprise from September 13? Or will the downside of the Federal Reserve’s preferred inflation measure provide a surprise?

EURUSD 1 hour chart

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Chart created by TradingView

Highlighting strong activity in a wedge formation, EURUSD came to test the key 0.9800 level, which was able to stop the bleeding after the September 21st FOMC meeting. Having previously been a key support area of ​​this type, bulls may have a difficult time breaking material in this new area of ​​resistance. Upward momentum may also be limited as traders may choose to stay flat or limit exposure to tomorrow’s PCE print. If it continues higher over the next few sessions, bulls will look to revisit the areas around 0.9900 and 0.9960 before finally trying to attack parity. On any serious pullback, I would look to the 0.9652 pivot zone for initial support.

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— Written by Brendan Fagan

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