EUR/USD and a Return to $1.05 in the Hands of the ECB and US Stats

It is a busy day for the EUR/USD on the economic calendar. Early in the session, German retail sales figures will draw interest. The latest GfK Consumer Climate report showed a fall in the propensity to buy sub-component, suggesting consumers will begin tightening the purse strings on the expectation of hefty energy bills in the coming months.

Economists forecast retail sales to fall by 0.6% in October.

While the retail sales numbers will draw interest, manufacturing PMIs from Spain and Italy and finalized PMIs from Germany, France, and the Eurozone will likely have more influence.

Weak numbers from Italy and downward revisions to the Eurozone PMI would pressure the EUR/USD.

Following the Eurozone’s inflation figures on Wednesday and considering today’s stats, ECB member chatter will also need monitoring. ECB members Andrea Enria, Philip Lane, and Frank Elderson will speak today, with news from the General Council meeting of the ECB also needing consideration.

Following Powell’s Wednesday speech, hawkish ECB member chatter would support a EUR breakout.

EUR/USD Price Action

At the time of writing, the EUR was up 0.01% to $1.04070. A range-bound start to the day saw the EUR/USD fall to an early low of $1.04002 before steadying.

Technical Indicators

The EUR/USD needs to avoid the $1.0375 pivot to target the First Major Resistance Level (R1) at $1.0460. Upward revisions to the Eurozone PMI and hawkish ECB member chatter would support a breakout session.

In the case of an extended rally, the bulls will likely test the Second Major Resistance Level (R2) at $1.0513 and resistance at $1.0550. The Third Major Resistance Level (R3) sits at $1.0652.

A fall through the pivot would bring the First Major Support Level (S1) at $1.0321 into play. However, barring a risk-off-fueled sell-off, the EUR/USD pair should avoid sub-$1.020. The Second Major Support Level (S2) at $1.0236 should limit the downside. Dovish ECB member commentary could deliver a sharp pullback.

The third Major Support Level (S3) sits at $1.0098.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bullish signal. The EUR/USD sits above the 50-day EMA ($1.03486). The 50-day EMA pulled away from the 100-day EMA, with the 100-day EMA widening from the 200-day EMA, delivering bullish signals.

A hold above the 50-day EMA ($1.03486) would support a breakout from R1 ($1.0460) to target R2 ($1.0513). However, a fall through the 50-day EMA ($1.03486) would bring S1 ($1.03211) and the 100-day EMA ($1.02776) into play. The 200-day EMA sits at $1.01612.

The US Session

It is also a busy day ahead, with inflation, personal spending, ISM Manufacturing PMI, and weekly jobless claims due. Barring a sharp fall in jobless claims, we expect the inflation and spending numbers to have more influence on the dollar.

Following Powell’s talk of slowing the pace of interest rate hikes, an unexpected spike in the Core PCE Price Index could deliver uncertainty over a Fed pivot. Economists forecast the Core PCE Price Index to rise 5.0% year-over-year versus 5.1% in September.

With inflation and personal spending in the spotlight, FOMC member chatter will also need tracking, with FOMC members Barr, Logan, and Bowman speaking today. Hawkish commentary would test the pivot theory.

According to the FedWatch Tool, the probability of a 75-basis point rate hike sits at 24.2% versus 33.7% one day earlier.