EUR/USD Targets Sub-$1.07 on Hot US Inflation and Hawkish Fed Bets

It is a quiet Monday session for the EUR/USD. There are no euro area economic indicators for investors to consider.

The lack of economic indicators will leave investors to look ahead to the Thursday ECB monetary policy decision and press conference.

Uncertainty over the Fed interest rate decision lingers ahead of the US CPI Report on Tuesday. The policy uncertainty will likely influence investor sentiment at the start of the week.

With a quiet economic calendar, investors should monitor ECB member chatter. However, no ECB members are on the calendar to speak today, leaving commentary with the media to draw interest.

EUR/USD Price Action

This morning, the EUR/USD was down 0.12% to $1.07350. A mixed start to the day saw the EUR/USD rise to an early high of $1.07516 before falling to a low of $1.07330.

Technical Indicators

Resistance & Support Levels

The EUR/USD has to move through the $1.0759 pivot to target the First Major Resistance Level (R1) at $1.0775 and the Friday high of $1.07851. A return to $1.0750 would signal a bullish session. However, the EUR/USD needs central bank commentary to support a breakout session.

In the case of an extended rally, the bulls will likely test the Second Major Resistance Level (R2) at $1.0801. The Third Major Resistance Level (R3) sits at $1.0843.

Failure to move through the pivot would leave the First Major Support Level (S1) at $1.0732 in play. However, barring a risk-off-fueled sell-off, the EUR/USD pair should avoid sub-$1.07. The Second Major Support Level (S2) at $1.0716 should limit the downside. The Third Major Support Level (S3) sits at $1.0674.

Looking at the EMAs and the 4-hourly chart, the EMAs sent bearish signals. The EUR/USD sits above the 50-day EMA ($1.07331). The 50-day EMA slipped back from the 100-day EMA, with the 100-day EMA pulling back from the 200-day EMA, delivering bearish signals.

A move through the 100-day EMA ($1.07576) would support a breakout from R1 ($1.0775) to give the bulls a run at R2 ($1.0801) and the 200-day EMA ($1.08027). However, a fall through the 50-day EMA ($1.07331) and S1 ($1.0732) would bring S2 ($1.0716) into view. A fall through the 50-day EMA would send a bearish signal.

The US Session

Eying the US session, there are no US economic indicators to shift the mood. With three days remaining, the probability of a 25-basis point Fed interest rate hike stood at 29.9%, up from 25.3% one week earlier. However, the sentiment toward the July interest rate decision has turned more hawkish.

According to the CME FedWatch Tool, the chance of a 25-basis point July Fed rate hike stands at 52.8% versus 30.1% for a hold. Significantly, bets on a 50-basis point July interest rate hike rose from 14.4% to 17.1% over the last week.

With the ECB making data-dependent policy moves, forward guidance on Thursday would need to be hawkish to tip the scales in favor of the EUR.