Eurozone CPI preview: What to expect of EUR/USD?

Having failed to sustain above 1.07 handle once again, the EUR/USD pair is reverting towards daily lows following the release of Germany’s retail sales report, which surprised markets to the downside. While a minor pullback in the greenback seen against most of its majors also added to the renewed selling pressure behind the spot.

Next in focus remains the Eurozone flash CPI estimate for January, scheduled to be published at 10.00GMT later this session.

CPI to tick higher in Jan

Eurostat will publish the euro zone's inflation first estimate for January. Consumer prices are expected to show a 1.5% rise on a yearly basis, following the 1.1% growth seen previously. While the core figures are expected to show no growth, and would remain at 0.9% y/y in Jan.

If the CPI comes weaker-than-expected it would cast doubts on the effectiveness of the ECB’s monetary policy program, which could send EUR/USD lower to test Monday’s lows at 1.0617. On the other hand, a much stronger CPI data could drive EUR/USD back beyond 1.0750 barrier.

Analysts at Danske Bank explain, “Euro area HICP inflation figures for January are set to be released. Energy price inflation has maintained the upward lift to headline inflation, which we expect to rise to 1.5% y/y in January, up from 1.1% y/y in December. However, we still see no signs that core inflation is picking up, expecting it to remain at 0.9% in January.”

Deviation impact on EUR/USD

Readers can find FX Street's proprietary deviation impact map of the event below. As observed the reaction is likely to remain confined between 10 and 40 pips in deviations up to 1.5 to -3, although in some cases, if notable enough, a deviation can fuel movements of up to 50 pips.

EUR/USD Technical Levels

Haresh Menghani, Analyst at FXStreet noted, “Despite of yesterday’s intra-day recovery, the pair is finding it difficult to decisively move back above 1.0700 handle. Hence, renewed weakness below 1.0680 horizontal level is likely to drag the pair back towards mid-1.0600s support area, en-route 1.0600 round figure mark representing 38.2% Fibonacci retracement level of 1.0341-1.0773 recent up-move and 50-day SMA support near 1.0590-85 region.”

“However, should the pair manage to gain a follow through traction above 1.0700 handle, it is likely to climb back to 1.0750 barrier above which the pair seems all set to aim towards reclaiming 1.0800 handle and head towards testing 100-day SMA resistance near 1.0820 region.”