EUR/USD Eyes Sub-$1.09 on US CPI Report and Policy Divergence

Highlights

• On Thursday, the ECB Economic Bulletin will draw interest, with recent euro area economic indicators raising the chances of a recession.
• However, the US CPI Report will have more impact. Hotter-than-expected inflation numbers would reignite bets on a Fed rate hike.
• The nearer-term technical indicators remained bearish, with sub-$1.09 in view.

On Wednesday, the EUR/USD rose by 0.16% to wrap up the day at $1.09738. Inflation and producer price index numbers from China and banking tax news from Italy offered modest support.

Today, there are no euro area economic indicators to draw interest. The lack of economic indicators will leave the EUR/USD in the hands of the ECB and the US economic calendar.

While no ECB Executive Board Members are on the calendar to speak today, the ECB will release the August issue of the ECB Economic Bulletin. Economic indicators from Germany and China have refueled recessionary jitters. The ECB Economic Bulletin must dismiss the chances of a Eurozone recession to deliver a bullish morning session.

The ECB Economic Bulletin provides an ECB view of economic, financial, and monetary developments. Inflation, economic activity, risk assessment, and monetary policy decisions are among the main sections of the Bulletin. Uncertainty surrounding the economic outlook, inflation, and ECB monetary policy gives the Bulletin more weighting.

The US Session

It is a big day ahead, with the all-important US CPI Report in focus. Hotter-than-expected inflation numbers would reignite bets on a September Fed interest rate hike, which could refuel recessionary jitters.

Economists forecast the US annual inflation rate to accelerate from 3.0% to 3.3% in July and for core inflation to hold steady at 4.8%.

Jobless claims figures will also draw interest. However, we expect the numbers to play second fiddle to the CPI Report.

While the Fed considers the Core PCE Price Index numbers a leading inflation indicator, the CPI Report carries significant weighting. The Fed is looking for inflationary pressures to ease significantly to take its foot off the gas. Wage growth and tight labor market conditions remain risks to the inflation puzzle.

EUR/USD Price Action

Daily Chart

The Daily Chart showed the EUR/USD remained below the $1.1015 – $1.1060 resistance band. However, the EUR/USD moved through the 50-day EMA ($1.09739) and held above the 200-day EMA ($1.07971), sending bullish near and longer-term price signals.

A EUR/USD hold above the 50-day EMA ($1.09739) would give the bulls a run at the $1.1015 – $1.1060 resistance band. However, a fall through the 50-day EMA would bring the $1.0900 – 1.0850 support band into play.

Looking at the 14-Daily RSI, the 47.87 reading sends moderately bearish price signals. The RSI suggests a fall through the 50-day EMA and the upper level of the $1.0900 – 1.0850 support band.

4-Hourly Chart

Looking at the 4-Hourly Chart, the EUR/USD sits below the $1.1015 – $1.1060 resistance band. The EUR/USD remains below the 50-day ($1.09890) and 200-day ($1.09978) EMAs, sending bearish near and longer-term price signals.

The 50-day EMA pulled back from the 200-day EMA this morning, a bearish price signal. Failure to move through the EMAs would bring sub-$1.0950 and the $1.0900 – 1.0850 support band into play. However, a EUR/USD move through the EMAs would support a breakout from the $1.1015 – $1.1060 resistance band to target $1.11.

The 14-4H RSI at 52.41 sends bullish EUR/USD price signals, with buying pressure outweighing selling pressure. Significantly, the RSI suggests a move through the EMAs to bring the $1.1015 – $1.1060 resistance band into play.

Price action today hinges on the US CPI Report.