EUR/USD Price Forecast: Fed Chair Powell to Test Support at $1.045

Following Tuesday’s disappointing consumer sentiment figures from Germany, Spanish and German inflation figures put the EUR in the spotlight today.

The German inflation figures are will have a more material impact on the EUR/USD.

With the ECB responding to the inflation climate, the pickup in inflationary pressure supported the ECB’s monetary policy goals, limiting the impact on the EUR.

ECB Monetary Policy and the EUR/USD

Today, the ECB will be in the spotlight, with members De Guindos and Schnabel speaking ahead of ECB President Christine Lagarde.

On Tuesday, Lagarde took a different stance to Fed Chair Powell, stating,

“We will address every obstacle that may pose a threat to achieving price stability.”

Speaking at the ECB Forum on Central Banking, Lagarde said,

“We will go as far as necessary to ensure that inflation stabilizes at our 2% target over the medium term.”

Lagarde went on to discuss gradualism, saying,

“At the same time, the euro area differs from some other major economies for two key reasons and the path of normalization has to be managed accordingly.

First, inflation in the euro area today is being driven by a complex mix of factors that reflect, in part, our economic structures and strategic dependencies. This creates uncertainty about how quickly inflation will return to our medium-term target.”

Lagarde added,

“In this setting, we need to act in a determined and sustained manner, incorporating our principles of gradualism and optionality.”

With the ECB President talking of gradualism and optionality, the markets will need to look for any deviation from the ECB’s forward guidance on monetary policy.

Currently, the ECB plans to:

• End net asset purchases under the asset purchase program on July 1.
• Raise the three key interest rates by 25 basis points at the July 21 meeting.
• Raise the key rates again in September.

However, uncertainty over a September move leaves the EUR vulnerable. During Tuesday’s speech, Lagarde said,

“If the medium-term inflation outlook persists or deteriorates, a larger increment will be appropriate at the September meeting.”

The uncertainty should leave the EUR/USD pair more sensitive to member state and Eurozone inflation figures through to the September policy meeting.

EUR/USD Price Action

At the time of writing, the EUR was down 0.21% to $1.04948.

A mixed start to the day saw the EUR rise to an early high of $1.05355 before sliding to a low of $1.04897.

The EUR/USD left the Major Support and Resistance Levels untested early on.

Technical Indicators

The EUR/USD will need to move through the $1.0542 pivot to target the First Major Resistance Level at $1.0581 and the Tuesday high of $1.06061.

Demand for riskier assets will need to improve to support a breakout from the morning high o of $1.05355.

An extended rally would test the Second Major Resistance Level at $1.0645 and resistance at $1.065. The Third Major Resistance Level sits at $1.0748.

Failure to move through the pivot would bring the First Major Support Level at $1.0478 into play.

Barring an extended sell-off throughout the day, the EUR should avoid sub-$1.040. The Second Major Support Level at $1.0439 should limit the downside.

Looking at the EMAs and the 4-hourly candlestick chart (below), it is a bearish signal.

This morning, EUR sat below the 50-day EMA, currently at $1.05390.

The 50-day EMA fell back from the 100-day EMA, with the 100-day EMA easing back from the 200-day EMA, EUR/USD price negative.

A move through the 50-day EMA would support a run at the First Major Resistance Level and a return to $1.06.

The US Session

Following market sensitivity to US consumer confidence figures on Tuesday, the market focus shifts to finalized Q1 GDP numbers. A downward revision would spook the markets and weigh on riskier assets and the EUR/USD pair.

The key driver, however, will be Fed Chair Powell, due to speak shortly after the release of the GDP numbers.

While there’s unlikely to be a material shift in forward guidance, any chatter on the economic outlook and change in views on interest rates will influence.