EUR/USD and a Return to $1.10 Hinged on the US Debt Ceiling

It is a relatively quiet day ahead for the EUR/USD. Finalized French and Spanish inflation figures for April will be in focus. Sticky inflation has supported more hawkish ECB chatter in recent sessions. The French inflation figures will likely garner more interest, with revisions to the Harmonized Index of Consumer Prices of greater significance.

However, investors should also track ECB commentary, with inflation, the US debt ceiling, and the banking sector in the spotlight. ECB Executive Board member Luis de Guindos is on the calendar to speak today.

On Thursday, ECB Vice President Luis de Guindos referred to inflation and terminal rates. Discussing inflation, the ECB VP said,

“What worries me the most in the underlying inflation trend is the trend in service prices. Momentum in services is rising. There’s demand and that’s because salary increases are accelerating.”

On terminal rates, de Guindos had this to say,

“Don’t believe anybody who tells you what the terminal rate is going to be. I don’t feel comfortable or uncomfortable, but markets can be wrong about this.”

EUR/USD Price Action

This morning, the EUR/USD was up 0.04% to $1.09196. A mixed start to the day saw the EUR/USD fall to an early low of $1.09113 before rising to a high of $1.09253.

Technical Indicators

Resistance & Support Levels

The EUR/USD needs to move through the $1.0938 pivot to target the First Major Resistance Level (R1) at $1.0976. A return to $1.0950 would signal a bullish session. However, the EUR/USD needs central bank commentary and market risk sentiment to support a breakout session.

In the case of an extended rally, the bulls will likely test resistance at the Thursday high of $1.0998 but fall short of the Second Major Resistance Level (R2) at $1.1036. The Third Major Resistance Level (R3) sits at $1.1134.

Failure to move through the pivot would leave the First Major Support Level (S1) at $1.0877 in play. However, barring another risk-off-fueled sell-off, the EUR/USD pair should avoid sub-$1.0850 and the Second Major Support Level (S2) at $1.0840. The Third Major Support Level (S3) sits at $1.0742.

Looking at the EMAs and the 4-hourly chart, the EMAs sent more bearish signals. The EUR/USD sits below the 200-day EMA ($1.09409). The 50-day EMA converged on the 100-day EMA, with the 100-day EMA narrowing to the 200-day EMA, delivering bearish signals.

A move through the 200-day EMA ($1.09409) would support a run at R1 ($1.0976) and the 100-day ($1.09820) and 50-day ($1.09826) EMAs. However, a bearish cross of the 50-day EMA through the 100-day EMA would bring S1 ($1.0877) and $1.0850 into view. A move through the 50-day EMA would send a bullish signal.

The US Session

Looking ahead to the US session, it is a relatively busy day on the US economic calendar. Michigan Consumer Sentiment and Consumer Expectation numbers will be in focus.

Following the Fed’s decision to hike interest rates by 25 basis points, consumer sentiment toward the economic outlook, inflation, and the labor market will likely be focal points.

While the Michigan numbers will influence, we expect FOMC member commentary to draw interest following the latest round of inflation numbers. FOMC member Bowman is on the calendar to speak later today.

Beyond the economic calendar, the banking sector and the US debt ceiling will also need monitoring.