EUR/USD Breaks its Lull after US Inflation Data: US GDP Ahead

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EUR/USD Breaks its Lull after US Inflation Data: US GDP Ahead

Today, we had some US inflation, jobless claims, and durable goods data. We did see that the data set helped the USD in the USD/CAD (US and Canadian Data Reinforced the Triangle Support). The main focus should be on the inflation data, which showed a disappointing headline reading of -0.7%, which was less than the -0.4% reading in December, but right around the forecast which called for a reading around -0.6%. The core reading did edge up to 0.2% vs. the 0.1% forecast and the 0.0% December print.

We also saw the USD strength in the EUR/USD as well, as the pair broke below a technical support around 1.1270.

EUR/USD 4H Chart 2/26
eurusd 4h chart 2/26
(click to enlarge)

Now, while the 4H chart is showing a bearish continuation breakout, today’s inflation data is not going to be the driver. The fundamental driver remains the divergence between the ECB and the Fed – While the ECB implements QE, the Fed is gearing up for a rate hike this year.

From a technical stand point, the breakout is more of a volatility breakout than a bearish breakout. The market is waking up and so far it is to the downside. However, we are unlikely to see a break below 1.11 unless tomorrow’s US GDP allows it.

Anticipating the US Preliminary GDP data for Q4:
us gdp q4
(US GDP q/q; source: forexfactory.com)
After a reading of 3.9% in Q3 of 2014, the advanced GDP estimate of Q4 reading came in at 2.6%. Tomorrow, the second or “preliminary” estimate is expected to show a downward revision to 2.1%. This is already disappointing and may have contributed to the USD’s weakness of late. A reading of 2.0% or lower might continue to resist USD-strength, but if the reading is close to 2.6% or higher, we should anticipate USD-strength especially against the euro, which is weak across the board.

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.