EUR/USD Bears Target Sub-$1.09 on Deteriorating Market Sentiment

Highlights

• On Monday, inflation is back in the spotlight, with German wholesale figures in focus.
• While a more marked decline in wholesale prices signals a weak demand environment, central bank chatter will also need consideration.
• The nearer-term technical indicators remained bearish, with sub-$1.0950 in view.

On Friday, the EUR/USD fell by 0.33% to wrap up the day at $1.09445. US producer price index numbers for July left the EUR/USD in negative territory for the third time last week.

Today, wholesale prices from Germany will influence. The weak demand environment has weighed on producer and wholesale prices. A more marked decline in wholesale prices would signal a worsening demand environment. Economists forecast wholesale prices to fall by 2.5% year-over-year in July versus a 2.9% decline in June.

With the European economic calendar on the light side, investors should track ECB chatter. However, no ECB Executive Board Members are on the calendar to speak today, leaving commentary with the media to move the dial.

Wholesale prices show the direction of prices of goods sold by wholesalers in Germany. Significantly, wholesale prices are a leading indicator of consumer price inflation. Upward trends in wholesale prices signal increased demand and a pickup in consumer inflationary pressures. However, negative numbers reflect a weak demand environment.

The US Session

It is a quiet US session, with no economic indicators to influence. The lack of US economic indicators will leave the EUR/USD in the hands of Fed chatter.

While no FOMC members are on the calendar to speak today, commentary with the media will move the dial. Despite sticky core inflation, the probability of the Fed standing pat in September increased from 87.0% to 90.0% last week. According to the CME FedWatch Tool, the chance of a 25-basis point September rate hike was just 10.0%. Hawkish chatter should move the dial.

EUR/USD Price Action

Daily Chart

The Daily Chart showed the EUR/USD remained below the $1.1015 – $1.1060 resistance band. On Friday, the EUR/USD fell through the 50-day EMA ($1.09710) while holding above the 200-day EMA ($1.07999), sending bearish near-tern but bullish longer-term price signals.

A EUR/USD move through the 50-day EMA ($1.09710) would give the bulls a run at the $1.1015 – $1.1060 resistance band. However, failure to move through the 50-day EMA would leave the $1.0900 – 1.0850 support band in play.

Looking at the 14-Daily RSI, the 42.68 reading reflects bearish sentiment. The RSI aligns with the 50-day EMA, signaling a fall to the upper level of the $1.0900 – 1.0850 support band.

4-Hourly Chart

Looking at the 4-Hourly Chart, the EUR/USD sits below the $1.1015 – $1.1060 resistance band. The EUR/USD remains below the 50-day ($1.09837) and 200-day ($1.09956) EMAs, sending bearish near and longer-term price signals.

The 50-day EMA eased back from the 200-day EMA this morning, a bearish price signal.

Failure to move through the EMAs would leave the $1.0900 – 1.0850 support band in play. However, a EUR/USD move through the EMAs would give the bulls a run at the $1.1015 – $1.1060 resistance band.

The 14-4H RSI at 38.54 reflects bearish sentiment, with selling pressure outweighing buying pressure. Significantly, the RSI suggests further losses and a fall through the upper level of the $1.0900 – $1.0850 support band.

Price action today hinges on German wholesale prices and central bank chatter.