EUR/USD Bulls to Target $1.08 on Italian Stats and ECB Chatter

It is a relatively quiet Friday session for the EUR/USD. Italian industrial production figures for April will draw interest this morning. Following the weaker-than-expected numbers from Germany, an unexpected fall in production would test buyer appetite.

While the EUR/USD enjoyed a breakout Thursday in response to the US jobless claims numbers, cracks are beginning to emerge in the euro area economy. A hawkish ECB is adding to the increased risk of a Eurozone recession that would likely cap the near-term upside for the EUR.

With the Italian economy in the spotlight, investors should monitor central bank commentary throughout the session. ECB Executive Board members Luis de Guindos and Andrea Enria are on the calendar to speak today. Dovish comments would have more impact on the EUR/USD.

Earlier today, inflation numbers from China set the tone. The annual inflation rate picked up from 0.1% to 0.2% in May versus a forecasted 0.4%. Inflation remained soft, with consumer prices falling by 0.2%. In April, consumer prices declined by 0.1%.

However, the Producer Price Index garnered more interest, falling by 4.6% year-over-year versus 3.6% in April. Economists forecast the Producer Price Index to decline by a more modest 2.8%.

EUR/USD Price Action

This morning, the EUR/USD was down 0.02% to $1.07797. A mixed start to the day saw the EUR/USD rise to an early high of $1.07851 before falling to a low of $1.07756.

Technical Indicators

Resistance & Support Levels

The EUR/USD has to avoid the $1.0754 pivot to target the First Major Resistance Level (R1) at $1.0815. A move through the Thursday high of $1.07871 would signal a bullish session. However, the EUR/USD needs central bank commentary 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 $1.0848 and resistance at $1.0850. The Third Major Resistance Level (R3) sits at $1.0943.

A fall through the pivot would bring the First Major Support Level (S1) at $1.0720 into play. However, barring a risk-off-fueled sell-off, the EUR/USD pair should avoid sub-$1.07 and the Second Major Support Level (S2) at $1.0659. The Third Major Support Level (S3) sits at $1.0564.

Looking at the EMAs and the 4-hourly chart, the EMAs sent bullish signals. The EUR/USD sits above the 100-day EMA ($1.07585). The 50-day EMA closed in on the 100-day EMA, with the 100-day EMA narrowing to the 200-day EMA, delivering bullish signals.

A move through the 200-day EMA ($1.08059) and R1 ($1.0815) would give the bulls a run at R2 ($1.0848) and $1.0850. However, a fall through the 100-day EMA ($1.07585) would bring the 50-day EMA ($1.07285) and S1 ($1.0720) into view. A fall through the 50-day EMA would send a bearish signal.

The US Session

It is another quiet US session. There are no US economic indicators to shift investor sentiment toward the US economy and Fed monetary policy.

On Thursday, a larger-than-expected rise in US jobless claims sent the EUR/USD to $1.0787 for the first time since May 24. Softer US service sector activity reflected the effects of the Fed’s policy maneuvers to tame inflation.

The latest US Jobs Report and Thursday’s jobless claims showed the first cracks in the US labor market, which could allow the Fed to take a less aggressive interest rate trajectory to bring inflation to target.

According to the CME FedWatch Tool, the probability of a 25-basis point June interest rate hike fell from 33.8% to 27.5% in response to the jobless claims numbers. However, the markets are more hawkish about the July policy decision.