EUR/USD and a Run at $1.09 Hinged on a Dovish Fed Pause

It is a relatively busy Tuesday session for the EUR/USD. German wholesale inflation figures will draw interest early in the European session. With the ECB delivering its June interest rate decision on Thursday, we expect the wholesale inflation numbers to influence.

Economists forecast German wholesale prices to fall by 1.0% in May and down by 3.3% year-over-year. However, weaker numbers would raise further concerns over demand.

Later this morning, Eurozone industrial production figures will also need consideration. However, the numbers are unlikely to influence the ECB monetary policy decision despite cracks appearing in the euro area economy.

With a busier economic calendar, investors should monitor ECB commentary throughout the session. However, no ECB executive Board 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 down 0.01% to $1.07918. A mixed start to the day saw the EUR/USD fall to an early low of $1.07856 before rising to a high of $1.07961.

Technical Indicators

Resistance & Support Levels

The EUR/USD has to avoid the $1.0790 pivot to target the First Major Resistance Level (R1) at $1.0827. A move through the Tuesday high of $1.08235 would signal a bullish session. However, the EUR/USD needs the Fed to support a breakout session.

In the case of an extended rally, the bulls will likely test the Second Major Resistance Level (R2) at $1.0860 and resistance at $1.09. The Third Major Resistance Level (R3) sits at $1.0931.

A fall through the pivot would bring the First Major Support Level (S1) at $1.0756 into play. However, barring a Fed-fueled sell-off, the EUR/USD pair should avoid sub-$1.0750 and the Second Major Support Level (S2) at $1.0719. The Third Major Support Level (S3) sits at $1.0649.

Looking at the EMAs and the 4-hourly chart, the EMAs sent bullish signals. The EUR/USD sits above the 100-day EMA ($1.07631). The 50-day EMA closed in on the 100-day EMA, with the 100-day EMA narrowing to the 200-day EMA, delivering bullish signals.

A move through the 200-day EMA ($1.08005) would support a breakout from R1 ($1.0827) to target R2 ($1.0860) and $1.09. However, failure to move through the 200-day EMA ($1.08005) would leave the 100-day EMA ($1.07631) and S1 ($1.0756) in view. A fall through the 50-day EMA ($1.07527 would send a bearish signal.

The US Session

Looking ahead to the US session, it is a busy day on the US economic calendar. US wholesale inflation numbers will draw interest ahead of the Fed policy decision.

Softer-than-expected US wholesale inflation numbers should further ease pressure on the Fed to push interest rates higher.

The US CPI Report impacted market sentiment toward Fed interest rates on Tuesday.

According to the CME FedWatch Tool, bets on the Fed hiking rates by 25 basis points in June tumbled in response to the inflation numbers. The probability of a June 25-basis point interest rate hike fell from 20.9% to 4.6%, with the chances of a July 50-basis point interest rate hike falling from 14.0% to 2.9%.

However, the probability of a 25-basis point July hike increased from 59.9% to 60.9%.

While the US inflation numbers will draw interest, the FOMC interest rate decision, economic projections, and press conference will be the focal points. A hawkish Fed pause would weigh on the EUR/USD.