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EUR/USD Bulls to Target $1.11 on Monetary Policy Divergence

By:
Bob Mason
Updated: May 3, 2023, 06:20 GMT+00:00

It is a busy day ahead for the EUR/USD. Euro area unemployment figures will draw interest ahead of US stats and the Fed monetary policy decision.

EUR/USD - Tech Analysis - FX Empire

It is a relatively quiet European economic calendar for the EUR/USD. This morning, Spanish unemployment figures will be in focus ahead of Eurozone unemployment numbers.

However, barring an unexpected surge in the euro area unemployment rate, we don’t expect the numbers to influence the EUR/USD. Sticky inflation numbers from Tuesday support a hawkish ECB interest rate hike on Thursday, with monetary policy divergence favoring the EUR.

With stats on the light side and inflation in focus, investors should monitor ECB member commentary. ECB Executive Board member Elizabeth McCaul is on the calendar to speak today. However, investors should also monitor the media for ECB comments.

EUR/USD Price Action

This morning, the EUR/USD was up 0.27% to $1.10280. A mixed start to the day saw the EUR/USD fall to an early low of $1.09969 before rising to a high of $1.10293. The EUR/USD broke through the First Major Resistance Level (R1) at $1.1024.

EURUSD 030523 Daily Chart

Technical Indicators

Resistance & Support Levels

R1 – $ 1.1024 S1 – $ 1.0958
R2 – $ 1.1049 S2 – $ 1.0917
R3 – $ 1.1115 S3 – $ 1.0851

The EUR/USD needs to hold above R1 and the $1.0983 pivot to target the Second Major Resistance Level (R2) at $1.1049. A move through the morning high of $1.10293 would signal a bullish session. However, the EUR/USD needs US economic indicators and the Fed to support a breakout session.

In the case of an extended rally, the bulls will likely test the Third Major Resistance Level (R3) at $1.1115.

A fall through R1 and the pivot would bring the First Major Support Level (S1) at $1.0958 into play. However, barring a Fed-fueled sell-off, the EUR/USD pair should avoid sub-$1.09. The Second Major Support Level (S2) at $1.0917 should limit the downside. The Third Major Support Level (S3) sits at $1.0851.

EURUSD 030523 Hourly Chart

Looking at the EMAs and the 4-hourly chart, the EMAs sent bullish signals. The EUR/USD sits above the 50-day EMA ($1.09986). The 50-day EMA pulled away from the 100-day EMA, with the 100-day EMA widening from the 200-day EMA, delivering bullish signals.

A hold above R1 ($1.1024) and the 50-day EMA ($1.09986) would support a breakout from R2 ($1.1049) to give the bulls a run at R3 ($1.1115). However, a fall through R1 ($1.1024) and the 50-day EMA ($1.09986) would bring the 100-day EMA ($1.09742) and S1 ($1.0958) into view. A fall through the 50-day EMA would send a bearish signal.

EURUSD 030523 4-Hourly Chart

The US Session

Looking ahead to the US session, it is a busy day on the US economic calendar. The US ADP nonfarm employment change and the all-important ISM Non-Manufacturing PMI will be in focus.

While the markets will consider the stats, the Fed will be the focal point. Investors expect a 25-basis point Fed interest rate hike. However, there is a high degree of uncertainty on whether the Fed will aim to deliver another 25-basis point hike in June.

After the latest Core PCE Price Index numbers, today’s stats could influence the decision and the EUR/USD.

Economists forecast the ADP to report a 150k increase in nonfarm payrolls and for the ISM Non-Manufacturing PMI to rise from 51.2 to 51.8.

About the Author

Bob Masonauthor

With over 28 years of experience in the financial industry, Bob has worked with various global rating agencies and multinational banks. Currently he is covering currencies, commodities, alternative asset classes and global equities, focusing mostly on European and Asian markets.

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