EUR/USD Bears to Target Sub-$1.07 on Fed Chair Powell

It is a relatively busy day ahead for the EUR/USD. German producer price numbers for April will be in focus this morning. With sticky inflation forcing the ECB to take a more hawkish outlook on monetary policy, hotter-than-expected wholesale inflation numbers could signal a summer interest rate hike.

Economists forecast the German Producer Price Index to increase by 4.0% year-over-year versus 6.7% in March.

After a week of mixed signals on the economic data front, investors should monitor ECB chatter throughout the day. ECB Executive Board members Isabel Schnabel and ECB President Christine Lagarde (pre-recorded) are on the calendar to speak today.

The ECB will also release the ECB Economic Bulletin, which will garner much interest following the EU Commission’s revisions to growth and inflation forecasts.

EUR/USD Price Action

This morning, the EUR/USD was flat at $1.07693. A mixed start to the day saw the EUR/USD rise to an early high of $1.07800 before falling to a low of $1.07597.

Technical Indicators

Resistance & Support Levels

The EUR/USD needs to move through the $1.0793 pivot to target the First Major Resistance Level (R1) at $1.0824 and the Thursday high of $1.08480. A return to $1.08 would signal a bullish session. However, the EUR/USD needs central bank commentary and the ECB Economic Bulletin to support a breakout session.

In the case of an extended rally, the bulls will likely test the Second Major Resistance Level (R2) at $1.0879. The Third Major Resistance Level (R3) sits at $1.0965.

Failure to move through the pivot would leave the First Major Support Level (S1) at $1.0739 in play. However, barring a Fed-fueled sell-off, the EUR/USD pair should avoid sub-$1.07. The Second Major Support Level (S2) at $1.0708 should limit the downside. The Third Major Support Level (S3) sits at $1.0622.

Looking at the EMAs and the 4-hourly chart, the EMAs sent bearish signals. The EUR/USD sits below the 50-day EMA ($1.08798). The 50-day EMA slid back from the 200-day EMA, with the 100-day EMA converging on the 200-day EMA, delivering bearish signals.

A move through R1 ($1.0824) would give the bulls a run at R2 ($1.0879) and 50-day EMA ($1.08798). However, failure to move through the 50-day EMA ($1.08798) would leave S1 ($1.0739) 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 quiet day on the US economic calendar. There are no US economic indicators for investors to consider. The lack of stats will leave the EUR/USD in the hands of market risk sentiment and, importantly, Fed chatter.

FOMC members Williams and Bowman will set the stage for Fed Chair Powell to wrap up the week. The Fed Chair has caught investors by surprise on numerous occasions. Sticky inflation and very tight labor market conditions could force Powell to discuss the possibility of a June interest rate hike.

Beyond the economic calendar, US debt ceiling-related news will move the dial.