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EUR/USD rises after hot French & Spanish inflation data, German & US inflation up next

• French & Spanish inflation cooled by less than forecast
• German inflation is expected to be 2.6% vs 2.9% previously
• EUR/USD sticks to the 200 SMA

EUR/USD is inching higher after hotter-than-expected French and Spanish inflation and ahead of German inflation later in the day. Although weaker than expected German retail sales are capping gains.

French inflation cooled slightly in February to 2.9%, down from 3.1%, but this was still ahead of the 2.7% forecast. Spanish inflation also cooled to 2.8% from 3.4% but again was hotter than analysts had expected. Attention now turns to German inflation figures, which are also expected to cool to 2.6%, down from 2.9%. However, on a monthly basis, inflation is expected to rise 0.5%, up from 0.2%, highlighting concerns over sticky inflation.

 Meanwhile, German retail sales were weaker than expected, falling by 0.4% after falling by 1.5% in December. Retail sales have been weakening since June 2023 as households struggle with record interest rates and still elevated inflation. However, the data is unlikely to impact the ECB rate decision, with the market not expecting a rate cut in April, and the first-rate cut is priced in for June.

German inflation data and eurozone inflation figures tomorrow will likely have a larger impact on the euro.

Looking ahead,  US core PCE will also be in focus and will likely drive the euro USD, with sticky US inflation expected to boost the USD.
 

EUR/USD forecast – technical analysis

EUR/USD continues to hover just above its 200 SMA at 1.0830 as the price consolidates ahead of the inflation reports. Buyers will look to rise above 1.0860, the weekly high, to extend gains to 1.09, the February high, and 1.10, the psychological level.

On the downside, a break below the 200 SMA opens the door to 1.0830, the weekly low, and below here, 1.07, the 2024 low, comes into focus.

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USD/JPY falls on hawkish BoJ chatter & ahead of the Fed’s preferred inflation gauge

• BoJ's hawkish comments boost the yen
• US core PCE to rise on a monthly basis by 0.4%
• USD/JPY falls below 150.00

USD/JPY is falling on yen strength after hawkish comments by Bank of Japan Policymaker Hajime Takata and ahead of US inflation data. Takata said that the central banks should consider overhauling their ultra-loose monetary policy and look to exit from negative interest rates and bond yield control.

His comments sent the yen surging, an optimism that the central bank could soon shift away from its dovish stance.

Meanwhile, attention now turns to US cool PCE, which is the main show in town this week. Expectations are for core PCE to cool annually to 2.8% from 2.9% yearly.

However, on a monthly basis, core PCE is expected to accelerate 0.4%, up from 0.2%, which would mark the second straight month of acceleration and highlight the bumpy Rd that the Fed faces as it struggles to get inflation back to its target level.

Federal Reserve officials have stressed the need for more work to be done to tame inflation and have pushed back against an early interest rate cut. Sticky inflation could support their view and lift the USD higher.

Currently, the market is pricing in a 63% probability of a rate cut at the June meeting.
 

USD/JPY forecast – technical analysis

The price has rebounded lower from 150.90, the 2024 high, dropping below 150.00, the psychological level, towards 149.50, the mid-February low.

If sellers can take out that level, a drop towards 148.80, the January high could be on the cards before exposing the 100 SMA at 147.80.

Meanwhile, buyers will look to recover the price back up towards 150.90 to extend gains towards 151.90, the multi-decade high.

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