EUR/USD drops below 1.0900 after dismal German data, EU/ US inflation eyed

EUR/USD is extending the pullback below 1.0900 after Germany’s Retail Sales disappointed by a wide margin early Friday. The pair retreats from weekly highs amid a broad US Dollar rebound, as investors turn cautious ahead of the Eurozone and US inflation data.

From a technical perspective, nothing seems to have changed for the major and the near-term bias still seems tilted firmly in favour of bullish traders. Hence, any meaningful slide below the 1.0900 mark is more likely to find decent support near the 1.0855-1.0850 region. This is followed by the overnight low, around the 1.0825 area, and the 1.0800 round figure.

A convincing break below the latter might prompt some technical selling and drag the EUR/USD pair towards the 50-day Simple Moving Average (SMA) resistance breakpoint, currently around the 1.0730 zone. Some follow-through selling below the 1.0700 mark should pave the way for a slide towards testing the 100-day SMA support near the 1.0640 region.

On the flip side, bulls might now wait for a move beyond the 1.0925 region, or the monthly peak, before placing fresh bets. The EUR/USD pair might then accelerate the momentum towards reclaiming the 1.1000 psychological mark and eventually climb to the 1.1030-1.1035 zone, or a ten-month peak touched in February.

The US Dollar (USD) remains depressed amid the uncertainty over the Federal Reserve’s (Fed) rate hike path and turns out to be a key factor acting as a tailwind for the major. The shared currency, on the other hand, draws support from slightly higher-than-expected German consumer inflation data released on Thursday, which reaffirmed bets for additional interest rate hikes by the European Central Bank (ECB).

It is worth recalling that the Fed had signalled recently that it might soon pause the rate-hiking cycle in the wake of the turmoil in the banking sector. That said, hopes that a widespread banking crisis might have been averted fueled speculations that the US central bank might move back to its inflation-fighting interest rate hikes. Furthermore, three Fed officials on Thursday backed the case for more rate increases to lower high levels of inflation. In fact, Boston Fed President Susan Collins said that raising interest rates by another 25 bps in March was appropriate and that there is more work to do to bring inflation down to the 2% target.

Separately, Minneapolis Fed President Neel Kashkari also noted that the central bank has more work to do to get inflation back to its 2% goal. Adding to this, Richmond Fed President Thomas Barkin said in a speech, “If you back off on inflation too soon, inflation comes back stronger, requiring the Fed to do even more, with even more damage.” Policymakers, meanwhile, added a note of caution about the uncertainty of what lies ahead, with two acknowledging that banking sector problems could generate enough headwinds on the economy to help cool price pressures faster than expected. This, along with slightly higher-than-expected US Jobless Claims and the prevalent risk-on environment, continues to weigh on the safe-haven buck.

The US Department of Labor (DOL) reported that the number of Americans filing for unemployment insurance for the first time rose to 198K during the week ended March 25 from the 191K previous. Meanwhile, the preliminary estimates for Germany indicated an increase in consumer prices by 0.8% in March and a 7.4% YoY pace. This sparks speculation of a potential upside surprise in the Eurozone CPI due this Friday. Investors will further take cues from the US Core PCE Price Index – the Fed’s preferred inflation gauge – due later during the early North American session. Apart from this, a scheduled speech by ECB President  Christine Lagarde should provide some meaningful impetus to the EUR/USD pair on the last day of the week.

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