EUR/USD Bears to Target Sub-$1.08 on German Stats and the ECB

Highlights

• The EUR/USD found support this morning, as investors bought on the dip.
• Later today, German Ifo Business Climate Index figures will draw attention.
• However, ECB President Christine Lagarde and Executive Board Member Elizabeth McCaul could have more impact.

It is a relatively quiet start to the week for the EUR/USD. German Ifo Business Climate Index numbers will draw interest today.

Hawkish central bank chatter and a deteriorating economic outlook could materially weigh on business sentiment as the ECB pushes ahead to tame inflation.

Economists forecast the headline Ifo Business Climate Index to fall from 91.7 to 90.7.

With business sentiment in focus, investors should monitor ECB commentary throughout the day. ECB President Christine Lagarde and ECB Executive Board Member Elizabeth McCaul are on the calendar to speak today. Dovish July sentiment or hawkish September policy intentions would move the dial.

EUR/USD Price Action

This morning, the EUR/USD was up 0.15% to $1.09080. A mixed start to the day saw the EUR/USD fall to an early low of $1.08933 before rising to a high of $1.09097.

Technical Indicators

Looking at the EMAs and the 4-hourly chart, the EMAs sent bullish signals. The EUR/USD sat above the 50-day EMA ($1.08991). The 50-day EMA pulled further away from the 200-day EMA, with the 100-day EMA widening from the 200-day EMA, delivering bullish signals.

A hold above the 50-day EMA ($1.08991) would support a breakout from R1 ($1.0952) to give the bulls a run at $1.10 and R2 ($1.1013).

However, a fall through 50-day EMA ($1.08991) would bring the 100-day ($1.08609) and 200-day ($1.08459) EMAs and S1 ($1.0837) into play. A fall through the 50-day EMA would send a bearish signal.

Resistance & Support Levels

The US Session

Looking forward to the US session, there are no US economic indicators to influence. The lack of economic indicators will leave the EUR/USD in the hands of Fed chatter. Hawkish chatter would weigh on the EUR/USD through the afternoon ahead of influential US stats this week.

This morning, bets on a July Fed interest rate hike remained elevated despite manufacturing sector woes. According to the CME FedWatch Tool, the probability of a 25-basis point July Fed rate hike stood at 71.9% versus 74.4% one week ago.

Significantly, the chances of the Fed lifting rates to 5.75% in September stood at 11.5%, up from 8.9% one week earlier, leaving monetary policy divergence in favor of the greenback.

In contrast, the more marked contraction across the Eurozone manufacturing sector and slower service sector activity suggest the ECB may need to hit the brakes after the July meeting.