EUR/USD Bulls to Target $1.12 on Hawkish Largarde Commentary

Highlights

• It is a busy day ahead for the EUR/USD, with the ECB delivering the heavily anticipated pre-summer interest rate decision.
• However, US economic indicators will also need consideration after the Wednesday Fed interest rate decision and Fed press conference.
• The nearer-term technical indicators are bearish, with the bears eying sub-$1.10.

On Wednesday, the EUR/USD gained 0.34% to wrap up the day at $1.10857. A quiet economic calendar left the Fed interest rate decision and the Fed Chair Powell press conference to move the dial. A fence-sitting Fed Chair was enough to reverse earlier losses.

This morning, German consumer sentiment figures will draw interest. Economists forecast the GfK Consumer Climate Index to rise from -25.4 to -24.7 for August. However, we don’t expect a material EUR/USD response to the report. The ECB monetary policy decision and the ECB press conference will move the dial.

Economists expect the ECB to lift rates by 25 basis points today. However, there is increased uncertainty beyond the summer break. While euro-area inflation remains elevated, the latest round of euro-area economic indicators signaled a Eurozone recession, which could impact the ECB’s ability to take aggressive measures to tame inflation.

No ECB members are on the calendar to speak before the ECB President Christine Lagarde press conference.

The US Session

US core durable goods and jobless claims will draw interest. However, prelim Q2 GDP numbers should have more impact. Fed Chair Powell and the markets are betting on a soft landing. Weaker-than-expected GDP numbers would reignite recessionary fears in the wake of the Fed 25-basis point interest rate hike.

While the GDP number will be the focal point, jobless claims numbers should continue reflecting tight labor market conditions. Tight labor market conditions would support consumer confidence and spending, both material to service sector activity. However, tight labor market conditions would leave a September Fed rate hike on the table.

EUR/USD Price Action

Daily Chart

The Daily Chart showed the EUR/USD hover above the $1.1060 – $1.1015 support band. Support at the upper level of the support band limited the downside on Wednesday. A EUR/USD return to $1.1150 would give the bulls a run at the $1.1180 – $1.1221 resistance band.

However, a fall through the $1.1060 – $1.1015 support band would bring the 50-day EMA ($1.09759) into view.

Looking at the EMAs, the EUR/USD sat above the 50-day ($1.09759) and 200-day ($1.07791) EMAs, signaling bullish momentum over the near and longer term.

Notably, the 50-day EMA pulled further away from the 200-day EMA, affirming the near-term bullish trend.

Looking at the 14-Daily RSI, the 57.10 reading sent bullish price signals. The RSI aligned with the EMAs, supporting a EUR/USD run at the $1.1180 – $1.1221 resistance band.

4-Hourly Chart

Looking at the 4-Hourly Chart, the EUR/USD sits above the $1.1060 – $1.1015 support band. However, the EUR/USD remained below the 50-day EMA ($1.11056) while holding above the 200-day EMA ($1.10114), sending bearish near-term but bullish longer-term price signals.

Significantly, the 50-day EMA narrowed on the 200-day EMA, signaling a fall through the $1.1060 – $1.1015 support band and the 200-day EMA ($1.10114). However, a move through the 50-day EMA ($1.11056) would give the bulls a run at the $1.1180 – $1.1221 resistance band.

The 14-4H RSI at 53.00 sends bullish EUR/USD price signals. Significantly, the RSI signals a move through the 50-day EMA, supporting a run at the $1.1180 – $1.1221 resistance band. Failure to move through the 50-day EMA would leave the $1.1060 – $1.1015 support band and the 200-day EMA ($1.10114) in play.