EUR/USD: Inflation data could start the next rally

EUR/USD extended its Draghi-driven rally and reached a peak at 1.1435. This is the highest level in over a year, above the Brexit day high.

From there, the pair slipped back and is “hugging” the 1.14 level. The euro probably needs to take a breather and is undergoing some profit taking. Another

Another reason is a small beat on US GDP: 1.4% annualized against 1.2% previously reported. The annualized growth rate in the euro-zone was 2.3% in Q1, significantly higher.

EUR/USD what’s next?

The central bank Festival in Portugal is behind us and so is Yellen’s highly anticipated speech. The focus now shifts to the data.

In the euro-zone, the next big release is inflation data. On Friday at 9:00 GMT we get the preliminary publication of price development in the euro-zone. Official expectations stand at a drop of headline CPI from 1.4% to 1.2% and a rise of core CPI from 0.9% to 1%.

We have  already received some preliminary data from Spain and Germany. Spain saw a drop from 1.9% to 1.5%. However, Germany saw a rise to 1.6%, better than expected.

Germany is a bigger country than Spain. Does this imply a positive surprise? We will still get the French number on Friday morning.

If the figures, especially core inflation, come out above expectations, we can expect the rally to resume. The ECB has a “single needle in its compass”: inflation. A rise could support the announcement about QE tapering.

EUR/USD levels

1.1425 still works as resistance. The break has not been confirmed. Above this level, we are already looking at the round number of 1.15, which is seen as a limit by some analysts.

Even higher, the levels to watch are 1.1620 and 1.1710, the highs of 2016 and 2015 respectively.

To the downside, we find 1.1390, the most recent low, followed by 1.13 which the pair had a tough time to break.

More:  EUR/USD: 3 Reasons Why Gains To Be Capped At 1.15 N-Term – Credit Suisse