EUR/USD and a Return to $1.1050 in the Hands of the US CPI Report

It is a relatively quiet day ahead for the EUR/USD. Finalized German inflation figures for April will be in focus. We expect revisions to prelim numbers to move the dial.

However, the EUR/USD may have a delayed reaction to the euro area stats. The US CPI Report will likely limit the impact of euro area stats and pre-CPI Report central bank commentary.

According to prelim numbers, Germany’s annual inflation rate softened from 7.4% to 7.2%. The ECB responded to the prelim inflation numbers from the euro area member states and for the Eurozone by delivering a 25-basis point interest rate hike and the promise of more.

Notably, ECB Chief Economist Philip Lane referred to inflation on Monday, saying,

“There’s a lot of disinflation coming this year (but) not quite yet. We’re still (seeing) a lot of momentum in inflation… there’s still momentum in food and core inflation.”

Investors should monitor ECB member commentary considering sensitivity to inflation. However, no ECB members are on the calendar to speak today, leaving chatter with the media to influence.

EUR/USD Price Action

This morning, the EUR/USD was up 0.13% to $1.09749. A mixed start to the day saw the EUR/USD fall to an early low of $1.09432 before rising to a high of $1.09749.

Technical Indicators

Resistance & Support Levels

The EUR/USD needs to avoid the $1.0969 pivot to target the First Major Resistance Level (R1) at $1.0996 and the Tuesday high of $1.10047. A return to $1.10 would signal a bullish session. However, the EUR/USD needs central bank commentary to support a pre-US CPI Report breakout session.

In the case of an extended rally, the bulls will likely test the Second Major Resistance Level (R2) at $1.1032 and resistance at $1.1050. The Third Major Resistance Level (R3) sits at $1.1096.

A fall through the pivot would bring the First Major Support Level (S1) at $1.0933 into play. However, barring a US CPI Report-fueled sell-off, the EUR/USD pair should avoid sub-$1.09. The Second Major Support Level (S2) at $1.0905 should limit the downside. The Third Major Support Level (S3) sits at $1.0841.

Looking at the EMAs and the 4-hourly chart, the EMAs sent more bearish signals. The EUR/USD sits below the 100-day EMA ($1.09909). The 50-day EMA closed in on the 100-day EMA, with the 100-day EMA narrowing to the 200-day EMA, delivering bearish signals.

A move through the 100-day ($1.09909) would support a breakout from R1 ($1.09960) and the 50-day EMA ($1.10042) to target R2 ($1.1032) and $1.1050. However, failure to move through the 100-day EMA ($1.09909) would leave S1 ($1.0933) in 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 busy day on the US economic calendar. The all-important US CPI Report will be in the spotlight. Unsurprisingly, investors have been cautious in the lead-up to today’s report. Inflation remains sticky in other economies, and the Fed may face a similar issue.

Hotter-than-expected inflation numbers would fuel bets of a 25-basis point June interest rate hike and a hard landing. Significantly, the markets would delay expectations of an interest rate cut.

With inflation the hot topic, we expect FOMC member commentary to move the dial. On Tuesday, FOMC Vice Chair John Williams shared his views on the economic outlook and monetary policy, saying,

“First of all, we haven’t said we’re done raising rates. We’re going to make sure we’re going to achieve our goals, and we’re going to assess what’s happening in our economy and make the decision based on that data.”

Williams also said he did not have an interest rate cut in his baseline forecast and could hike rates if required.

Beyond the economic calendar, the banking sector, the US debt ceiling, and corporate earnings also need consideration.