EUR/USD Outlook: Bullish potential intact amid hawkish ECB talks, German CPI in focus

• EUR/USD remains on the defensive amid some follow-through USD uptick on Thursday.
• Hawkish ECB expectations continue to underpin the Euro and help limit the downside.
• Investors now look to the prelim German CPI and the US macro data for some impetus.

The EUR/USD pair edges lower during the Asian session on Thursday and moves away from a four-day peak touched the previous day, though the downside seems cushioned. The US Dollar (USD) gains positive traction for the second successive day and turns out to be a key factor exerting some pressure on the major. The takeover of Silicon Valley Bank by First Citizens Bank & Trust Company, coupled with the fact that no further cracks have emerged in the banking sector over the past two weeks, seems to have calmed market nerves about the contagion risk. This led to fresh speculations that the Federal Reserve (Fed) will move back to its inflation-fighting interest rate hikes, which, in turn, is seen lending some support to the Greenback.

The shared currency, however, might continue to draw support from the recent hawkish commentary by several European Central Bank (ECB) members, saying that interest rates will likely have to rise further to contain inflation. Lane added that a recession is not necessary to bring inflation down and a soft landing of the economy was possible. Separately, Slovak central bank chief Peter Kazimir noted the ECB should not change its stance on rates, though advocated the case for slower rises following three straight 50 bps hikes. Nevertheless, the prospects for further policy tightening by the ECB might hold back traders from placing aggressive bearish bets around the EUR/USD pair and help limit deeper losses, at least for now.

Market participants also seem reluctant and prefer to wait on the sidelines ahead of the key inflation data from the Eurozone and the US. On Thursday, Spain and Germany will release the prelim March CPI prints, which will be followed by the flash version of the Eurozone inflation figures and the US Core PCE Price Index - the Fed's preferred inflation gauge - on Friday. Apart from this, traders will take cues from the final US Q4 GDP report and the usual Weekly Initial Jobless Claims, due later during the early North American session. The fundamental backdrop, meanwhile, seems tilted in favour of the EUR/USD bulls, suggesting that any meaningful pullback could be seen as a buying opportunity and is more likely to remain limited.

Technical Outlook

From a technical perspective, the recent breakout through the 50-day Simple Moving Average (SMA) favours bullish traders and adds credence to the constructive outlook for the EUR/USD pair. Moreover, oscillators on the daily chart are holding in the positive territory and support prospects for additional gains. Hence, a subsequent strength back towards the 1.0900 mark, en route to the monthly swing high, around the 1.0930 region, looks like a distinct possibility. Some follow-through buying should allow spot prices to reclaim the 1.1000 psychological mark and climb further towards the 1.1030-1.1035 zone, or a ten-month peak touched in February.

On the flip side, a corrective pullback below the 1.0800 round figure might continue to find decent support and attract fresh buyers near the 50-day SMA resistance breakpoint, currently around the 1.0730 zone. That said, a convincing break below might prompt some technical selling and make the EUR/USD pair vulnerable to weaken further below the 1.0700 mark, towards testing the 100-day SMA support near the 1.0640 region. The latter is likely to act as a pivotal point and a strong base, which if broken decisively might negate the positive outlook and shift the near-term bias in favour of bearish traders.