EUR/USD Bulls Target $1.12 on Policy Divergence Bets

Highlights

• The EUR/USD had a bullish start to the day, with the US CPI Report delivering further support.
• It is a busier day on the European economic calendar, with Eurozone industrial production and the ECB monetary policy meeting minutes in focus.
• However, the US PPI Report and jobless claims will also move the dial.

It is a busier day ahead for the EUR/USD. Finalized inflation numbers from France should not influence the EUR/USD, barring a marked revision to prelim numbers.

However, Eurozone industrial production numbers will draw interest later in the session. Economists forecast production to increase by 0.3% versus a 1% rise in April.

The ECB will also be in the spotlight today, with the ECB monetary policy meeting minutes likely to influence. With the markets expecting the Fed to hit the brakes after the summer, hawkish ECB bets could see a sharp increase in the EUR/USD on ECB monetary policy divergence from the Fed.

ECB commentary will need consideration. ECB President Christine Lagarde and Mr. Fabio Panetta are attending the Eurogroup meeting in Brussels.

The US Session

It is a busy day on the US economic calendar. US wholesale inflation figures for June and the weekly jobless claims will draw interest. A pickup in wholesale inflation and an unexpected fall in jobless claims could leave the markets to grapple with uncertainty toward a September move.

While the economic indicators will move the dial, investors should also track FOMC member chatter throughout the day.

On Wednesday, the US CPI Report impacted sentiment toward a September Fed rate hike. According to the CME FedWatch Tool, the probability of a 25-basis point July Fed rate hike was 94.2% versus 93.0% on Tuesday. Significantly, the chances of the Fed lifting rates to 5.75% in September stood at 13.2%, down from 22.3% on Tuesday.

China Trade Data Tested Buyer Appetite Early

China trade data set the tone this morning. Another gloomy set of trade numbers will test buyer appetite early in the European session.

The China USD trade surplus widened from $65.81 billion to $70.62 billion in June. However, the trade surplus widened because of a slide in imports. Exports fell by 6.8%, year-over-year, versus 4.5% in May, while imports tumbled by 12.4% versus 7.5% in May. Economists forecast exports to fall by 4% and imports by 9.5%.

EUR/USD Price Action

Daily Chart

The Daily Chart showed the EUR/USD break through the $1,1050 – $1.1099 resistance band to test resistance at the $1.1150 psychological resistance level.

Looking at the EMAs, the EUR/USD sat above the 50-day ($1.08934) and 200-day ($1.07401) EMAs, signaling bullish momentum over the near and longer term.

Notably, the 50-day EMA pulled further away from the 200-day EMA and reflected bullish momentum.

Looking at the 14-Daily RSI, the 70.49 reading signaled the EUR/USD in overbought territory, aligned with the 50-day EMA. A hold above the resistance band and the 50-day EMA ($1.08934) would support a breakout from $1.1150 to target $1.1200.

4-Hourly Chart

Looking at the 4-Hourly Chart, the EUR/USD held above the $1.11 psychological level and the $1.1050 – $1.1090 resistance band.

The EUR/USD sits above the 50-day ($1.09812) and 200-day EMA ($1.09008), sending bullish near and longer-term signals.

Significantly, the 50-day EMA pulled further away from the 200-day EMA, signaling a run at $1.12.

The EUR/USD must avoid sub-$1.11 to target $1.12. However, a fall through the resistance band would bring sub-$1.10 and the 50-day EMA ($1.09812) into view.

The 14-4H RSI reading of 77.51 shows the EUR/USD in overbought territory. However, the RSI aligns with the 50-day EMA, supporting a run at $1.12.