EUR/USD Bears Target $1.0100 on Monetary Policy Divergence

It is a quiet day for the EUR/USD on the economic calendar. Flash Eurozone consumer confidence numbers for November will draw interest late in the European session. Economists forecast the Eurozone Consumer Confidence Index to rise from -27.6 to -26.0.

However, following the German wholesale inflation figures for October and some dovish ECB member chatter, Eurozone consumer confidence would need a sharp improvement to deliver EUR/USD support.

In October, Germany’s annual wholesale inflation rate softened from 45.8% to 34.5% versus a forecast of 41.5%.

Adding to the downside for the EUR/USD was divergent monetary policy chatter. On Monday, ECB Chief Economist Philip Lane suggested a smaller rate hike in December. Lane reportedly said,

“One platform for considering a very large hike, such as 75 basis points, is no longer there. The move you’ve already done on a cumulative basis, that changes the pros and cons of any given increment.”

Lane added that the ECB was not going to hit pause on rate hikes but consider smaller rate hikes at the right time.

Following Philip Lane’s comments on Monday, we expect increased EUR/USD sensitivity to ECB member chatter. While no ECB members are due to speak today, investors need to monitor comments to the media.

EUR/USD Price Action

At the time of writing, the EUR was up 0.04% to $1.02432. A mixed start to the day saw the EUR/USD fall to an early low of $1.02380 before rising to a high of $1.02466.

Technical Indicators

The EUR/USD needs to move through the $1.0265 pivot to target the First Major Resistance Level (R1) at $1.0308 and the Monday high of $1.03332. ECB member chatter needs to be hawkish, and consumer confidence would need to improve to support a breakout from $1.0300.

In the case of an extended rally, the bulls will likely test the Second Major Resistance Level (R2) at $1.0376. The Third Major Resistance Level (R3) sits at $1.0487.

Failure to move through the pivot would leave the First Major Support Level (S1) at $1.0197 in play. However, barring another sell-off, the EUR/USD pair should avoid sub-$1.010. The Second Major Support Level (S2) at $1.0154 should limit the downside.

However, dovish ECB and hawkish Fed chatter could deliver another sharp pullback.

The third Major Support Level (S3) sits at $1.0044.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bullish signal. The EUR/USD sits above the 100-day EMA ($1.01596). The 50-day EMA narrowed to the 100-day EMA, while the 100-day EMA pulled away from the 200-day EMA, delivering mixed signals.

A hold above the S1 ($1.0197) and a move through the 50-day EMA ($1.02617) would support a breakout from R1 ($1.0308) to target R2 ($1.0376). However, a failure to move through the 50-day EMA ($1.02617) would leave sub-$1.0100 in play. The 200-day EMA sits at $1.00542.

The US Session

It is a quiet day ahead on the US economic calendar, with no US economic indicators to drive the EUR/USD. The lack of stats will leave the dollar in the hands of Fed chatter.

FOMC members Mester, George, and Bullard will deliver speeches today. Hawkish Fed chatter would put the EUR/USD under more pressure and bring sub-$1.01 into view.

The probability of a 75-basis point December rate hike had fallen to 14.6% before rising to 24.2% over the weekend. This morning, the likelihood of a 75-basis point rate hike stood at 19.4%, according to the FedWatch Tool.