EUR/USD Rests Upon Long-Term Trend Filter Ahead of Key Inflation Data

EUR/USD News and Analysis

German Unemployment Rate Ticks Higher

The country dubbed ‘the sick man of Europe’ has noted a slow but steady rise in unemployment as the continent’s largest economy sheds more jobs. In fact, the Federal Labour Office confirmed that there are 11,000 more people looking for work which beat the estimate of 7,000. The government warned of slowing momentum in the jobs market in the first few months of 2024 and also revised its full year growth forecast from 1.3% to 0.2%.

The government agency added that the “weak economic environment is dampening the overall robust labour market “ as only 706,000 job openings were registered with the office, 72,000 fewer than a year ago.

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At 13:00 today, inflation data for Germany is due. There is an expectation of a drop in the year on year measure but the month on month calculation is anticipated to rise from 0.2% to 0.5%. Subdued economic activity should lead to lower inflation over time but the robust labour market could mean that this may take a lot longer than originally thought.

Wage data is pretty high up on the ECB’s list of concerns with its members opting to view Q1 wage data before indicating when exactly it may be appropriate to cut rates. Then later today EUR/USD is likely to see an uptick in intra-day volatility when US PCE data comes out 30 minutes after the inflation print.

EUR/USD Rests Upon a Long-Term Trend Filter Ahead of Key Inflation Data

The pair has recently seen upside potential capped at the blue 50-day simple moving average (SMA). EUR/USD is surrounded on both sides by moving averages, with the 200 DMA and 1.0830 propping up the pair.

There is a lack of conviction around directional moves as the pair consolidates after attempting a bullish reversal. Markets expect the ECB to cut interest rates by a greater magnitude this year and that may weigh on the euro alongside the economic hardships and potential recessionary conditions potentially already under way, according to the Bundesbank.

EUR/USD Daily Chart

Source: TradingView, prepared by Richard Snow

IG Retail Positioning Levels Out as Indecision Creeps in

IG retail client sentiment offers little help now that positioning is near 50/50. Shorts and longs have converged as markets attempt to make sense of recent moves with an eye on the Fed and ECB. The well-known contrarian indicator works better in strong trending markets.

EUR/USD:Retail trader data shows 48.88% of traders are net-long with the ratio of traders short to long at 1.05 to 1.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EUR/USD prices may continue to rise.

Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EUR/USD trading bias.

— Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX