The EURUSD pair staged a mini-performance on Forex ahead of the most important events of the week: Fed and ECB meetings. The contraction of the German economy in the fourth quarter by 0.2% and the unexpected acceleration of Spanish inflation have become catalysts for the roller coaster of the euro. For some time, the bulls managed to take quotes above 1.09, and the struggle for this important level is by no means over.

Surprises are an integral part of life in the international currency market. However, it is unlikely that the decline in German GDP in October–December can be attributed to them. Theres been a talk about recession in the leading eurozone economy in the fall, but the latest forecasts of the Bundesbank and the German government said that a recession could be avoided. The -0.2% in the fourth quarter leaves the question of a technical recession open, but this will likely not happen. The German economy is off to a pretty good start in 2023, judging by PMIs and other indicators.

Another thing is the Spanish inflation. After five months of slowdown and optimistic forecasts by Bloomberg experts that this process will continue, consumer prices soared from 5.5% to 5.8% in January like a bolt from the blue. This is a clear gift to the ECB hawks who are dreaming of raising the deposit rate by 50 bps not only in February and March, but also in May. If before the release of the Spanish statistics, supporters of the aggressive tightening of monetary policy were nodding exclusively at the stability of core inflation, now they have a new argument.

Dynamics of European inflation

It is not surprising that EURUSD soared above 1.09. UBS notes that the European Central Bank can add half of the basis points not at two, but at three meetings in a row. Credit Agricole believes that in February, ECB President Christine Lagarde will signal 100 bps in March and May. Even at the end of the week of January 27, it looked like the ECB had no argument for the euro to regain its upward trend against the U.S. dollar. Now everything looks different. The potential of the rally is far from being revealed. Everything is in the hands of the Governing Council.

However, to get started, EURUSD needs to pass the test of the FOMC meeting. The position of the Fed is transparent, it is going to raise the rate by 25 bps, but the excessive euphoria of the financial markets may become a bone in the throat of the central bank. Morgan Stanley believes that the U.S. stock market's upward hike has gone too far. Corporate reporting is weak, the economy is slowing, and investors have forgotten the principle of "don't go against the Fed." One volley from the ship of Jerome Powell and his colleagues and the S&P 500 will go to the bottom, dragging the main currency pair with it.

Technically, consolidation continues on the EURUSD daily chart in the range of 1.083–1.093. Breaking through its boundaries is unlikely to be a reliable signal for opening deals on the eve of important events. It's another matter if this happens after the ECB or Fed meetings. In this regard, for the time being, we use false breakouts of support at 1.083 or resistance at 1.093 to open long or, conversely, short positions.