EUR/USD Gains as Traders Eye European Inflation Data

Market Overview

EUR/USD is approaching its weekly high on Monday as investors positioned themselves ahead of a series of critical economic reports from the eurozone. Last week, inflation figures in France and Spain fell more than expected, heightening speculation that the European Central Bank (ECB) could accelerate its rate-cutting cycle. The market has now priced in a potential rate cut at the ECB’s next meeting on October 17, following two rate cuts earlier this year.

Given the ECB’s efforts to lower inflation, market participants are increasingly focused on upcoming data releases. If inflation data across major eurozone economies, including Germany and Italy, continue to point downward, it could bolster expectations of further monetary easing.

Technical Analysis

On the four-hour chart, EUR/USD is trading within a defined upward channel, having recently breached the 1.11889 level. Buyers are now contending with resistance at 1.12065, a key level that could determine the continuation of the current rally. If the pair can hold above this resistance, further gains toward 1.12157, 1.12289, and the channel high at 1.12536 could be on the horizon.

Momentum indicators, including the RSI and MACD, remain in bullish territory, suggesting continued upward pressure. The pair is also trading above its key moving averages, further reinforcing the bullish outlook.

Alternative Scenario

Should sellers regain control, a reversal below the critical 1.11889 support level could signal a shift in momentum. In this case, the next downside targets would be 1.11565 and the key low at 1.11242. Failure to hold above these levels would likely negate the current bullish scenario and invite further declines.

Key Levels Overview

• Resistance Levels:
  • Resistance 1: 1.12065
  • Resistance 2: 1.12157
  • Resistance 3: 1.12289
  • Resistance 4: 1.12536
• Current Price: 1.11980
• Support Levels:
  • Support 1: 1.11889
  • Support 2: 1.11565
  • Support 3: 1.11242

Key Events to Watch

Investors will closely watch initial inflation figures from the eurozone this week, with expectations that the numbers will show a decline toward the ECB’s 2% target—the lowest since June 2021. Germany’s inflation rate is forecast to drop to 1.7%, its lowest since February 2021, while Italy’s inflation could fall to 0.8%. Weak PMI data from Spain, Italy, and Switzerland are expected to highlight ongoing economic struggles, particularly in manufacturing sectors.

ECB President Christine Lagarde is scheduled to speak at the European Parliament on Monday, providing further insight into the central bank’s policy direction. On the U.S. side, Chicago PMI data for September and a speech by Federal Reserve Chairman Jerome Powell will be key events that could influence EUR/USD’s next move.

Conclusion

EUR/USD remains in a bullish uptrend as traders anticipate key inflation data from the eurozone. A sustained break above 1.12065 could pave the way for further gains toward 1.12536, but a failure to hold this level may see a reversal toward the 1.11565 support. Both the ECB’s next moves and upcoming U.S. data will play pivotal roles in determining the pair’s near-term direction.