EUR/USD Faces Sub-$1.08 on Euro Area Stats and Fed Hawks

It is a busy day ahead for the EUR/USD. German wholesale inflation figures for April will set the tone ahead of the European opening bell. Wholesale price inflation is a precursor to consumer price inflation. An unexpected pickup in wholesale price inflation would pressure the ECB to continue to deliver further rate hikes.

However, wholesale price deflation would sound the alarm bells. Economists forecast wholesale inflation to soften from 2.0% to 0.9% in April.

Later in the session, Eurozone industrial production figures will also influence. German industrial production tumbled by 3.4% in March, suggesting a weak number.

However, investors should also track ECB commentary, with inflation, the US debt ceiling, and the banking sector in the spotlight. ECB Executive Board member Andrea Enria is on the calendar to speak today, with ECB President Lagarde attending the Eurogroup meeting in Brussels.

On Monday, Economic Bulletin pre-releases will also draw interest. The ECB will release a model-based assessment of the macroeconomic impact of the ECB’s monetary policy tightening since December 2021.

EUR/USD Price Action

This morning, the EUR/USD was up 0.07% to $1.08562. A mixed start to the day saw the EUR/USD fall to an early low of $1.08447 before steadying.

Technical Indicators

Resistance & Support Levels

The EUR/USD needs to move through the $1.0877 pivot to target the First Major Resistance Level (R1) at $1.0907. A return to $1.09 would signal a bullish session. However, the EUR/USD needs progress toward raising the US debt ceiling, central bank commentary, and economic indicators to support a breakout session.

In the case of an extended rally, the bulls will likely test resistance at the Friday high of $1.09355 and the Second Major Resistance Level (R2) at $1.0965. The Third Major Resistance Level (R3) sits at $1.1053.

Failure to move through the pivot would leave the First Major Support Level (S1) at $1.0819 in play. However, barring another risk-off-fueled sell-off, the EUR/USD pair should avoid sub-$1.0750. The Second Major Support Level (S2) at $1.0790 should limit the downside. The Third Major Support Level (S3) sits at $1.0702.

Looking at the EMAs and the 4-hourly chart, the EMAs sent bearish signals. The EUR/USD sits below the 200-day EMA ($1.09368). The 50-day EMA closed in on the 200-day EMA, with the 100-day EMA narrowing to the 200-day EMA, delivering bearish signals.

A move through R1 ($1.0907) would support a breakout from the 200-day EMA ($1.09368) to give the bulls a run at R2 ($1.0965) and the 50-day EMA ($1.09582). However, failure to move through the 200-day EMA ($1.09368) would leave S1 ($1.0819) and the sub-$1.08 Major Support Levels view. A move through the 50-day EMA would send a bullish signal.

The US Session

Looking ahead to the US session, it is a relatively busy day on the US economic calendar. NY Empire State Manufacturing Index numbers for May will be in focus. Economists forecast a fall from 10.8 to -2.5, which would be bearish.

FOMC member commentary will also draw interest, with members Kashkari, Bostic, and Barkin speaking today. Hawkish chatter would weigh on the EUR/USD as investors search for clues on what is next from the Fed.

According to the CME FedWatch Tool, there was a 14.4% chance of a 25-basis point interest rate hike in June, down from 15.5% on Friday.

Beyond the economic calendar, the banking sector and the US debt ceiling will also need monitoring.