EUR/USD peeps above 1.18 even as German 10-yr yield falters

The EUR/USD jumped to a session high of 1.1809 in Europe even though the German 10-year bund yield declined by 2.9 basis points [bps] to 0.451%.

The bid tone around the EUR appears to have strengthened after German data showed the number of jobless people fell by 23K in September as opposed to the expected drop of 5K.

Focus on inflation differential

The Eurozone September preliminary CPI, due at 0900GMT, is likely to come-in at 1.6% y/y. The core CPI is seen rising 1.2% y/y vs. previous figure of 1.3%. Across the pond, core PCE inflation — the Federal Reserve’s preferred measure on price pressures — is forecast to lift 0.2% in August following a 0.1% increase in July.

The common currency could extend previous day's recovery if the Eurozone inflation betters estimates and the US core PCE disappoints market expectations.

EUR/USD Technical Levels

Slobodan Drvenica from Windsor Brokers Ltd writes, " The Euro is standing at the front foot in early Friday and attempts to extend recovery rally from the previous day, on break above initial barriers at 1.1800 zone (Thursday’s high / 55SMA).

Strong fall which commenced on Monday, after German election results put the single currency under pressure, was contained by the top of thick daily cloud (cloud is spanned between 1.1724 and 1.1530). Strong support at 1.1720 zone (also Fibo 38.2% of 1.1118/1.2092 ascend) was seen as ideal reversal point of the pullback from 1.2092 peak, as rising thick daily cloud continues to underpin. Slow stochastic is reversing from oversold territory and supporting scenario.

Extension of recovery on profit-taking after three-day fall needs to clear sideways-moving daily Tenkan-sen / Kijun-sen (1.1875/1.1904 respectively) to confirm higher low and shift near-term focus higher. Otherwise, limited recovery action would keep the downside at risk, with close below 55SMA to keep negative near-term tone in play and penetration into daily cloud to signal further weakness towards supports at 1.1662 (17 Aug trough) and 1.1605 (50% retracement of 1.1118/1.2092). The pair is on track for weekly close in red, as well as negative end of the month which could signal further correction of broader uptrend from 1.0340 (2017 low).