EUR/USD Return to $1.07 in the Hands of US Consumer Confidence

It was a busy morning for the EUR/USD. The French economy was in the spotlight early in the European session, with GDP, prelim inflation, and consumer spending figures in focus.

In Q4, the French economy expanded by 0.1% according to finalized numbers, unchanged from the first estimate and growth in Q3.

Significantly, inflationary pressures picked up in February, with the French annual inflation rate rising from 6.0% to 6.2% versus a forecasted 6.1%

According to Insee.fr,

• An acceleration in prices for food and services pushed inflation higher in February.
• Energy price pressures softened while the manufacturing inflation rate held steady.
• Consumer prices increased by 0.9% in February following a 0.4% rise in January.
• Energy prices increased at a slower pace, while there was a pickup in prices for manufactured goods and services.

Consumer spending was also EUR/USD positive, rising by 1.5% in January. In December, spending slid by 1.6%. The latest French inflation and consumer spending numbers support a 50-basis point rate hike in March and were good enough for the EUR/USD to recover early losses.

However, the ECB will unlikely consider the latest numbers in April, when the ECB shifts to a data-dependent, meeting-by-meeting policy approach.

In the latest ECB Economic Bulletin, the ECB noted that rising wage growth and declining energy price inflation should ease the loss of purchasing power and support consumption. Inflationary pressures would need to ease to support the ECB’s outlook on consumption.

After the latest US inflation numbers and shift in sentiment toward Fed monetary policy, investors need to monitor ECB member speeches. However, with no ECB Executive Board members on the calendar to speak today, investors should track ECB Executive Board member commentary with the media.

EUR/USD Price Action

At the time of writing, the EUR/USD was up 0.07% to $1.06169. A mixed morning saw the EUR/USD fall to a low of $1.05818 before rising to a high of $1.06263.

Technical Indicators

The EUR/USD needs to avoid the $1.0587 pivot to target the First Major Resistance Level (R1) at $1.0642. A move through the morning high of $1.06263 would signal a bullish session. However, the EUR/USD would need the US stats and the ECB 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 $1.0674 and resistance at $1.07. The Third Major Resistance Level (R3) sits at $1.0761.

A fall through the pivot would bring the First Major Support Level (S1) at $1.0555 into play. However, barring a data-fueled sell-off, the EUR/USD pair should avoid sub-$1.05. The Second Major Support Level (S2) at $1.0500 should limit the downside. The Third Major Support Level (S3) sits at $1.0415.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bearish signal. The EUR/USD sits below the 50-day EMA ($1.06268). The 50-day EMA fell back from the 200-day EMA, with the 100-day EMA easing back from the 200-day EMA, delivering bearish signals.

A move through the 50-day EMA ($1.06268) and R1 ($1.0642) would give the bulls a run at the 100-day EMA ($1.06729) and R2 ($1.0674). A move through the 50-day EMA would send a bullish signal. However, failure to move through the 50-day EMA ($1.06268) would leave the Major Support Levels in play.

The US Session

It is a day on the US economic calendar. Goods trade data for January will draw interest early in the session. However, barring a marked widening in the goods trade deficit, the numbers should have a muted impact on the dollar.

The US CB Consumer Confidence numbers for February will influence. A larger-than-expected rise in confidence would support the more aggressive Fed monetary policy outlook. Economists forecast the Index to increase from 107.1 to 108.5.

Other stats include house price data. However, the latest jump in US mortgage rates will mute investor sentiment towards a likely slowdown in house price growth in December.

Following the latest Core PCE Price Index numbers, investors should also monitor FOMC member chatter.