EUR/USD Bulls Need a Favorable Powell Speech to Retarget $1.10

Highlights

• The EUR/USD struggled this morning, despite hawkish ECB chatter from Tuesday.
• Investors took a more cautious footing ahead of ECB and Fed chatter today.
• German consumer sentiment numbers will also move the dial as the ECB juggles inflation and the economy.

It is a busier start to the day for the EUR/USD. Germany’s GfK Consumer Climate numbers for July will be in focus early in the session. Weaker consumer sentiment would signal a pullback in spending, which could lead to a further slowdown in service sector activity.

However, while sticky inflation and elevated interest rates are bugbears, labor market conditions remain favorable. Wage growth and unemployment levels will likely partially offset the effects of inflation and interest rates. Increasing fear of a recession would be another story, however.

Later in the session, prelim inflation figures from Italy will also need consideration. Sticky inflation would support a post-summer move despite bets of inflation softening over the summer break.

ECB President Christine Lagarde, Chief Economist Philip Lane, and ECB Executive Board Members Luis de Guindos and Andrea Enria are on the calendar to speak today. Dovish July sentiment or hawkish September policy intentions would need consideration.

Lagarde had this to say on inflation on Tuesday,

“The shocks that drove up prices are still feeding through to the economy and making inflation more persistent. The break this, we must bring rates to sufficiently restrictive levels and keep them there for as long as needed.”

ECB President Lagarde’s comments followed two days of hawkish Fed Chair Powell testimony and the BoE’s surprise 50-basis point interest rate hike.

EUR/USD Price Action

This morning, the EUR/USD was down 0.09% to $1.09509. A mixed start to the day saw the EUR/USD rise to an early high of $1.09627 before falling to a low of $1.09422.

Technical Indicators

Looking at the EMAs and the 4-hourly chart, the EMAs sent bullish signals. The EUR/USD sits above the 50-day EMA ($1.09125). 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 S1 ($1.0916) and the 50-day EMA ($1.09125) would support a breakout from R1 ($1.0991) to give the bulls a run at $1.10 and R2 ($1.1021).

However, a fall through S1 ($1.0916) and 50-day EMA ($1.09125) would bring the 100-day EMA ($1.08763) and S2 ($1.0872) into play. A fall through the 50-day EMA would send a bearish signal.

Resistance & Support Levels

The US Session

Looking toward the US session, there are no US economic indicators to influence. The lack of economic indicators leaves central bankers to move the dial and investors on edge ahead of the Core PCE Price Index and personal spending numbers on Friday.

An unexpected pickup in inflationary pressure, steady labor market conditions, and a rise in personal spending would support a hawkish Fed ahead of the next Jobs Report.

With no stats to consider until Thursday, Fed Chair Powell will garner plenty of interest. The Fed Chair must maintain the two-rate hike outlook to support the greenback.

After the US consumer confidence and core durable goods order numbers, sentiment toward Fed policy moves in July and August remained steady.

According to the CME FedWatch Tool, the probability of a 25-basis point July Fed rate hike stood at 76.9% versus 74.4% on Monday.

Significantly, the chances of the Fed lifting rates to 5.75% in September stood at 15.4%, up from 10.4% on Monday.