EUR/USD rebound eyes 1.1200 ahead of Eurozone Q4 GDP, German Inflation

• EUR/USD stretches Friday’s corrective pullback amid US dollar weakness, pre-ECB optimism.
• US Treasury yields remain firmer but indecision over Fed’s rate-hike pace drags greenback amid sluggish start to the crucial week.
• Eurozone Q4 GDP, German HICP for January may test ECB hawks for today but Wednesday’s Eurozone CPI is more important.
• Russian headlines, Fedspeak may also entertain traders before Friday’s US jobs report.

EUR/USD extends Friday’s U-turn from the lowest levels since June 2020, up 0.15% intraday around 1.1165 heading into Monday’s European session.

The major currency pair’s latest recovery could be linked to the US dollar’s pullback from an 18-month top as the market’s brace for Friday’s US jobs report amid mixed signals concerning March’s rate-hike. Adding to the EUR/USD pair’s upside momentum could be the traders’ consolidative performance ahead of the key data/events, as well as amid an absence of China and a light calendar during Monday’s Asian session.

That said, the US Dollar Index (DXY) reversed from the highest levels since July 2020 on Friday, down 0.11% on a day around 97.10 at the latest, after the US Q4 Employment Cost Index (ECI) raises challenges for the Fed policymakers who expect 0.50% rate hikes. Though, strong readings of the Fed’s preferred gauge of inflation, namely Core PCE Price Index for December rose to 4.9%, versus 4.8% forecast and 4.7% prior, keeping the Fed hawks on the table.

Following the US data release, Federal Reserve Bank of Minneapolis President Neel Kashkari said that he expects Fed to raise rates at the March meeting. Though, the policymaker emphasized the importance of incoming data while also saying, “Have to see how data plays out.”

On the same line was Atlanta Fed President Raphael Bostic who said during an interview with the Financial Times (FT), “If the data say that things have evolved in a way that a 50 basis point move is required or [would] be appropriate, then I’m going to lean into that . . . If moving in successive meetings makes sense, I’ll be comfortable with that.”

Elsewhere, the US Senate's aggression towards passing a law to sanction Russia weighs on the risk appetite and probes the EUR/USD bulls.

Against this backdrop, the US Treasury yields print mild gains but stocks in Asia-Pacific and the US stock futures remain steady amid a sluggish start to the key week.

Looking forward, the preliminary readings of the Q4 Eurozone GDP, expected to rise to 4.7% YoY versus 3.9% prior, will precede Germany’s first readings of the Harmonized Index of Consumer Prices (HICP) for January, forecast -0.4% versus +0.3% prior, to direct immediate EUR/USD moves. “The spread of COVID and health restrictions are expected to weigh on Eurozone Q4 GDP growth,” said Westpac ahead of the data release.

It’s worth noting that major attention will be given to Wednesday’s Eurozone Consumer Price Index (CPI) and Thursday’s European Central Bank (ECB) monetary policy meeting.

Read: EUR/USD Weekly Forecast: ECB’s decision and Nonfarm Payrolls take center stage

Technical analysis

EUR/USD bulls approach a convergence of the last year’s low marked in December 2021 and 61.8% Fibonacci retracement (Fibo.) of the pair’s 2017-18 advances, near 1.1185, as RSI bounces from the oversold territory. If the pair manages to cross the 1.1185 resistance confluence, the corrective pullback could eye the 50-DMA level near 1.1300.

Alternatively, a downward sloping trend line from March 2021, near 1.1030, will lure the EUR/USD bears on breaking the recent multi-day bottom around 1.1120.