EUR/USD Bears Eye Sub-$1.08 on Sticky US Inflation and Fed Bets

Highlights

• The EUR/USD found early support this morning, gaining 0.07% to $1.08703.
• The German and French economies will draw interest early in the session before Eurozone inflation numbers that will move the dial.
• However, US Core PCE Price Index and personal spending numbers will have more impact.

It is another busy day ahead for the EUR/USD. Early in the session, German retail sales and unemployment numbers will be in focus alongside prelim inflation numbers from France.

While the early stats will draw interest, Eurozone inflation numbers for June will garner more interest. Hotter-than-expected inflation would fuel bets of post-summer ECB rate hikes to tame inflation.

Economists forecast the Eurozone’s annual inflation rate to soften from 6.1% to 5.6%. However, economists expect core inflation to accelerate from 5.3% to 5.5%, which would fuel bets on a post-summer ECB move.

With inflation in the spotlight, investors should monitor ECB chatter throughout the day. However, no ECB Executive Board members are on the calendar to speak today, leaving chatter with the media to move the dial.

Earlier today, China PMI numbers set the tone. In June, the China NBS Manufacturing PMI increased from 48.8 to 49.0, while the Non-Manufacturing PMI fell from 54.5 to 53.2. Economists forecast the manufacturing PMI to rise from 48.8 to 49.0 and the services PMI to fall from 54.5 to 53.7.

EUR/USD Price Action

This morning, the EUR/USD was up 0.07% to $1.08703. A mixed start to the day saw the EUR/USD rise to an early high of $1.08754 before falling to a low of $1.08601.

Technical Indicators

Looking at the EMAs and the 4-hourly chart, the EMAs sent bearish signals. The EUR/USD sat below the 100-day EMA ($1.08804). 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 EMA ($1.08804) would support a breakout from the 50-day EMA ($1.09054) and R1 ($1.0916) to give the bulls a run at R2 ($1.0969).

However, a fall through the 200-day EMA ($1.08602) would bring S1 ($1.0835) into play. A move through the 50-day EMA would send a bullish signal.

Resistance & Support Levels

The US Session

It is a busy US economic calendar with the all-important US Core PCE Price Index numbers in focus. Sticky inflation or an unexpected pickup in US inflationary pressure would support Fed Chair Powell’s consecutive rate hike warning.

Other stats include personal spending/income and finalized consumer sentiment figures that need consideration. We expect the spending and income figures to garner more interest, however.

After Fed Chair Powell’s hawkish comments and the US economic indicators from Thursday, the markets cemented a July rate hike ahead of today’s inflation numbers. Investors also raised their bets on a September move.

According to the CME FedWatch Tool, the probability of a 25-basis point July Fed rate hike stood at 89.3% versus 81.8% on Wednesday. Significantly, the chances of the Fed lifting rates to 5.75% in September stood at 26.8%, up from 16.4% on Wednesday.