EUR/USD in the Hands of German Unemployment and Inflation

It is a busy day ahead for the EUR/USD. German unemployment numbers for December will draw interest early in the European session.

An unexpected rise in Germany’s unemployment rate from 5.6% would pressure the EUR. The ECB is looking for unemployment to hold steady to support consumer confidence and spending and allow the ECB to continue lifting interest rates higher.

However, while the numbers will influence, German prelim inflation figures for December will be the key stat of the session. Softer-than-expected inflation figures would ease pressure on the ECB and ease fears of a lengthy economic recession. Economists forecast the German annual inflation rate to soften from 10.0% to 9.1%.

No ECB members are speaking today, leaving investors to consider the impact of today’s stats on ECB monetary policy.

From early in the day, the Caixin Manufacturing PMI for China will set the tone. Weak numbers will test the appetite for riskier assets and the EUR. Economists forecast the PMI to fall from 49.4 to 48.8.

EUR/USD Price Action

At the time of writing, the EUR was up 0.05% to $1.06702. A mixed start to the day saw the EUR/USD rise to an early high of $1.06830 before falling to a low of $1.06502.

Technical Indicators

The EUR/USD needs to move through the $1.06710 pivot to target the First Major Resistance Level (R1) at $1.06930 and the Monday high of $1.06994. A return to $1.0690 would signal a bullish session.

In the case of an extended rally, the bulls will likely test the Second Major Resistance Level (R2) at $1.0721. The Third Major Resistance Level (R3) sits at $1.0771.

Failure to move through the pivot would leave the First Major Support Level (S1) at $1.0643 in play. However, barring a risk-off-fueled sell-off, the EUR/USD pair should avoid sub-$1.0630 and the Second Major Support Level (S2) at $1.0621.

The third Major Support Level (S3) sits at $1.0571.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bullish signal. The EUR/USD sits above the 50-day EMA ($1.06426). 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 the 50-day EMA ($1.06426) would support a move through R1 ($1.0693) to target R2 ($1.0721) and $1.0750. However, a fall through S1 ($1.06430) and the 50-day EMA ($1.06426) would bring S2 ($1.0621) into view. The 100-day EMA sits at $1.06029.

The US Session

It is a quiet day ahead on the economic calendar, with the finalized Manufacturing PMI for December in focus. We expect market sensitivity to any revision to prelim numbers.

Investors should also look out for any FOMC member commentary. Following the holidays, the markets are looking for a response to the latest round of economic indicators.