EUR/USD Bulls to Target $1.0850 on Soft US CPI Report

It is a busy Tuesday session for the EUR/USD. Finalized inflation numbers for Germany and ZEW Economic Sentiment figures for Germany and the Eurozone will draw interest.

However, the ZEW Economic Sentiment figures should garner more interest, barring upward revisions to the German inflation numbers.

Economists forecast the German ZEW Economic Sentiment Index to fall from -10.7 to -12.7 and the Eurozone Economic Sentiment Index to decline from -9.4 to -11.9 in June.

While a decline in sentiment would be EUR/USD bearish, the ECB remains resolute in tackling inflation, which should limit the influence of the numbers on the ECB monetary policy decision.

With a busier economic calendar, investors should monitor ECB commentary throughout the session. ECB Executive Board Member Andrea Enria is on the calendar to speak today.

EUR/USD Price Action

This morning, the EUR/USD was up 0.19% to $1.07770. A mixed start to the day saw the EUR/USD fall to an early low of $1.07529 before rising to a high of $1.07775.

Technical Indicators

Resistance & Support Levels

The EUR/USD has to avoid the $1.0760 pivot to target the First Major Resistance Level (R1) at $1.0787 and the Monday high of $1.07901. A move through the morning high of $1.07775 would signal a bullish session. However, the EUR/USD needs central bank commentary and the US CPI Report to support a breakout session.

In the case of an extended rally, the bulls will likely test the Second Major Resistance Level (R2) at $1.0817 and resistance at $1.0850. The Third Major Resistance Level (R3) sits at $1.0874.

A fall through the pivot would bring the First Major Support Level (S1) at $1.0730 into play. However, barring a US CPI Report-fueled sell-off, the EUR/USD pair should avoid sub-$1.07. The Second Major Support Level (S2) at $1.0703 should limit the downside. The Third Major Support Level (S3) sits at $1.0646.

Looking at the EMAs and the 4-hourly chart, the EMAs sent bullish signals. The EUR/USD sits above the 100-day EMA ($1.07584). 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 R1 ($1.0787) and the 200-day EMA ($1.08005) would give the bulls a run at R2 ($1.0817) and $1.0850. However, a fall through the 100-day ($1.07584) and 50-day ($1.07399) EMAs would bring S1 ($1.0730) into view. A fall through the 50-day EMA would send a bearish signal.

The US Session

Eying the US session, the all-important US CPI Report is in focus.

The US CPI Report will be the main report of the day. Hotter-than-expected US inflation numbers would tip the monetary policy divergence scales in favor of the Greenback.

However, economists forecast the US annual inflation rate to soften from 4.9% to 4.1%, supporting a Fed pause on Wednesday.

The probability of a June rate hike fell from 29.9% to 18.5% this morning, according to the CME FedWatch Tool. However, the chance of a 25-basis point July Fed rate hike increased from 52.8% to 59.1%. Significantly, bets on a 50-basis point July interest rate hike fell from 17.1% to 11.9%.