EUR/USD Bulls Eye $1.0750 on Inflation and Debt Ceiling Updates

It is a relatively busy day ahead for the EUR/USD. Prelim Spanish inflation and Eurozone business and consumer sentiment numbers for May will draw interest.

With the ECB under pressure to tame inflation, a pickup in Spanish inflationary pressure should provide EUR/USD support. Economists forecast Spain’s annual inflation rate to accelerate from 4.1% to 4.4%.

However, Eurozone business and consumer confidence figures will also move the dial, with the consumer inflation expectations and selling price expectations components likely to have more impact.

While inflation and sentiment numbers are in focus, investors should monitor central bank commentary. However, no ECB members are on the calendar to speak today, leaving chatter with the media to draw interest.

EUR/USD Price Action

This morning, the EUR/USD was up 0.14% to $1.07218. A mixed start to the day saw the EUR/USD fall to an early low of $1.07040 before rising to a high of $1.07262.

Technical Indicators

Resistance & Support Levels

The EUR/USD has to avoid the $1.0718 pivot to target the First Major Resistance Level (R1) at $1.0731 and the Monday high of $1.07434. A move through the morning high of $1.07262 would signal a bullish session. However, the EUR/USD needs the debt ceiling news and economic indicators to support a breakout session.

In the case of an extended rally, the bulls will likely test the Second Major Resistance Level (R2) at $1.0756. The Third Major Resistance Level (R3) sits at $1.0794.

A fall through the pivot would bring the First Major Support Level (S1) at $1.0693 into play. However, barring a risk-off-fueled sell-off, the EUR/USD pair should avoid sub-$1.0650. The Second Major Support Level (S2) at $1.0680 should limit the downside. The Third Major Support Level (S3) sits at $1.0642.

Looking at the EMAs and the 4-hourly chart, the EMAs sent bearish signals. The EUR/USD sits below the 50-day EMA ($1.07698). The 50-day EMA fell back from the 200-day EMA, with the 100-day EMA pulling back from the 200-day EMA, delivering bearish signals.

A move through R1 ($1.0731) would give the bulls a run at R2 ($1.0756) and the 50-day EMA ($1.07698). However, failure to move through the 50-day EMA ($1.07698) would leave S1 ($1.0693) 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 relatively quiet day on the US economic calendar. US housing sector data and consumer confidence numbers for May will be in focus. We expect the CB Consumer Confidence Index to have more impact.

Elevated inflation, the Fed policy moves, and the US debt ceiling crisis will likely test consumer confidence. However, tight labor market conditions could limit the damage. Economists forecast the CB Consumer Confidence Index to fall from 101.3 to 99.0.

While the numbers will influence, investors should monitor Fed chatter and US debt ceiling-related news.