EUR/USD Bears to Target Sub-$1.08 on Soft German Inflation Stats

Highlights

• The EUR/USD saw red this morning, with Fed Chair Powell’s comments from Portugal resonating.
• German inflation numbers and the ECB Economic Bulletin will provide direction ahead of the US session.
• However, central bank chatter, US jobless claims, and Q4 GDP numbers also need consideration.

It is a busy day ahead for the EUR/USD. The ECB Economic Bulletin will garner plenty of interest this morning. With the ECB committed to bringing inflation to target, ECB sentiment toward inflation and the economic outlook will move the dial.

However, German inflation numbers for June will likely have more impact. Sticky inflation would support the ECB’s hawkish stance to bring inflation to target. Economists forecast Germany’s annual inflation rate to accelerate from 6.1% to 6.3%.

With inflation in the spotlight, investors should monitor ECB chatter throughout the day. ECB Executive Board Member Elizabeth McCaul is on the calendar to speak today. Dovish July sentiment or hawkish September policy intentions would need consideration.

Investors brushed aside hawkish ECB from the ECB Central Bank Forum. ECB Executive Board Member Martins Kazaks said the markets are pricing in rate cuts too soon and at too fast a pace, adding next year would be too early for rate cuts.

EUR/USD Price Action

This morning, the EUR/USD was down 0.17% to $1.08940. A mixed start to the day saw the EUR/USD rise to an early high of $1.09187 before sliding to a low of $1.08918.

Technical Indicators

Looking at the EMAs and the 4-hourly chart, the EMAs sent mixed signals. The EUR/USD sat below the 50-day EMA ($1.09133). The 50-day EMA narrowed to the 100-day EMA, while the 100-day EMA widened from the 200-day EMA, delivering mixed signals.

A move through the 50-day EMA ($1.09133) would support a breakout from R1 ($1.0951) to give the bulls a run at R2 ($1.0990) and $1.10.

However, failure to move through the 50-day EMA ($1.09133) would leave S1 ($1.0885) and the 100-day EMA ($1.08808) in play. A move through the 50-day EMA would send a bullish signal.

Resistance & Support Levels

The US Session

Looking at the US session, Q4 GDP and initial jobless claims will need consideration. After Fed Chair Powell’s hawkish comments on Wednesday, sentiment toward Fed monetary policy turned more hawkish. Steady jobless claims and an upward revision to GDP estimates would support Fed Chair Powell’s two-rate hike projection.

According to the CME FedWatch Tool, the probability of a 25-basis point July Fed rate hike stood at 81.8% versus 76.9% on Tuesday. Significantly, the chances of the Fed lifting rates to 5.75% in September stood at 16.4%, up from 15.4% on Tuesday.

Ahead of the US session, Fed Chair Powell will be speaking again. However, the Fed Chair must deviate from previous scripts to move the dial.