EUR/USD: 61.8% Fib hurdle caps gains ahead of German and US inflation data

• EUR/USD ran into offers near 1.1407 (61.8% Fib R of 1.1514/1.1234) on Wednesday.  
• The path of least resistance is on the higher side as the 10-year US-German yield spread is looking south.  
• The spread may nosedive if the US inflation number validates Fed’s recent dovish turn. The pair will also take cues from the German CPI and US Q4 GDP.  

EUR/USD is mildly bid near 1.1375 at press time, having found offers close to 1.1407 (61.8% Fib R of 1.1514/1.1234) yesterday.  

The pair failed to take out the key Fib hurdle, possibly due to lack of fresh developments on US-China trade. Trump’s top negotiator Lighthizer said that both parties are making real progress, but stressed that any deal brokered between the two should be all or nothing.

Further, a three basis point rise in the 10-year US-German yield spread may have weighed over the common currency.  

That said, the rising wedge breakdown on the yield differential, confirmed on Monday, is still valid. So, the path of least resistance for the EUR is still to the higher side.  

Focus on inflation differential

The German data due at 13:00 GMT is expected to show the cost of living jumped 0.5 percent month-on-month in February, having dropped 0.8 percent in the previous month.  

Meanwhile, the Fed’s preferred measure of inflation – the core personal consumption expenditure – scheduled for release at 13:30 is expected to have risen 1.6 percent quarter-on-quarter in the fourth quarter.  

The yield differential could drop hard toward January lows near 240 basis points if the German data blows past expectations and the core PCE misses estimates, validating the Fed’s patience on rate hikes. In that case, EUR/USD will likely find acceptance above 1.1407.  

The breakout, however, may remain elusive, if the core PCE betters estimates, pushing the treasury yields higher.  The greenback will also take cues from the preliminary Q4 GDP, also due for release at 13:30 GMT.  

Technical Levels