EUR/USD Forecast: Bullish potential intact ahead of German CPI, US PCE Price Index

The EUR/USD pair struggles to capitalize on the overnight late rebound from sub-1.1000 levels and meets with a fresh supply during the Asian session on Friday. This marks the second successive day of the downtick and is sponsored by a modest US Dollar (USD) strength, bolstered by firming expectations for another 25 bps lift-off at the next FOMC policy meeting in May. The bets were reaffirmed by Thursday's US macro data, which indicated persistent price pressures and that the US job market remains healthy despite an economic slowdown.

The US Bureau of Economic Analysis reported that growth in the world's largest economy decelerated from 2.6% annualized pace to 1.1% during the January-March period, missing estimates for a reading of 2.0%. The disappointment, however, was offset by the fact that the GDP Price Index unexpectedly edged higher to 4% from 3.9%. Moreover, the Personal Consumption Expenditures (PCE) Prices rose from 3.7% to 4.2% during the first three months of the year, while the Core PCE climbed 4.9%, higher than the 4.7% estimated.

Separately, data published by the US Department of Labor (DOL) showed that Initial Jobless claims fell to 230K in the week ended April 22 as compared to the 246K previous and the 248K anticipated. This also marks the lowest level in three weeks, supporting prospects for further policy tightening by the Fed. This remains supportive of the overnight advance in the US Treasury bond yields and underpins the buck. That said, the risk-on impulse caps gains for the safe-haven Greenback and lends support to the EUR/USD pair.

The shared currency is further underpinned by expectations for additional interest rate hikes by the European Central Bank (ECB) in the coming months.  In fact, the ECB's Philip Lane told in a recent interview on Tuesday that leaving interest rates at the current level would be inappropriate despite falling inflation. This, in turn, suggests that the immediate market reaction to Friday's release of the prelim German consumer inflation figures is more likely to be muted, albeit a stronger CPI print could provide a modest lift to the EUR/USD pair.

The focus will then shift to the release of the US Core PCE Price Index - the Fed's preferred inflation gauge - later during the early North American session. This, along with the US bond yields and the broader risk sentiment, might influence the USD price dynamics and produce short-term trading opportunities around the EUR/USD pair on the last day of the week. The aforementioned fundamental backdrop, meanwhile, seems tilted in favour of bulls and suggests that the path of least resistance for spot prices is to the upside.

Technical Outlook

From a technical perspective, any subsequent fall is more likely to find decent support near the lower end of over a one-month-old upward sloping trend-channel, currently pegged just below the 1.1000 psychological mark. This coincides with the 100-period Simple Moving Average (SMA) on the 4-hour chart and should act as a pivotal point, which if broken decisively should set the stage for some meaningful corrective pullback from a 13-month high touched on Wednesday. The EUR/USD pair might then accelerate the fall towards the 1.0900 mark before eventually dropping to the 200-period SMA on the 4-hour chart, currently around the 1.0880 area. Some follow-through selling will negate any positive bias and shift the near-term bias in favour of bearish traders, paving the way for deeper losses.

On the flip side, the 1.1040 horizontal zone now seems to act as an immediate hurdle, above which bulls might aim to conquer the 1.1100 mark. Some follow-through buying should allow the EUR/USD pair to accelerate the momentum towards challenging the ascending channel resistance, currently around the 1.1160 region. A sustained strength beyond the latter will be seen as a fresh trigger for bullish traders and set the stage for an extension of the recent upward trajectory witnessed since mid-March.