EUR/USD to Target $1.0750 on Euro Area Inflation and Debt Ceiling News

It is another busy day ahead for the EUR/USD. April German retail sales figures kickstart the European session. Following disappointing Q1 GDP numbers, a pickup in consumer spending should provide some comfort. Economists forecast German retail sales to increase by 1.0%. Retail sales fell by 2.4% in March.

However, Spanish and Italian manufacturing PMIs and finalized manufacturing PMIs from France, Germany, and for the Eurozone and prelim euro area inflation numbers will also draw interest. Barring material revisions to the prelim numbers, we expect prelim inflation numbers to have more impact.

Economists forecast the annual inflation rate to hold steady at 7.0% and core inflation to soften from 5.6% to 5.5%. Hotter-than-expected inflation figures would force the ECB to continue raising interest rates to tame inflation.

The ECB will also be in the spotlight, with the ECB Monetary Policy Meeting Accounts and ECB member commentary in focus. ECB President Christine Lagarde and Executive Board member Andrea Enria are on the calendar to speak today.

However, before the European session, economic data from China set the tone.

China’s all-important Caixin Manufacturing PMI for May gave investors a better view of the macroeconomic environment midway through the second quarter.

The all-important Caixin Manufacturing PMI increased from 49.5 to 50.9 in May versus a forecasted 50.3.

News of the US House of Representatives vote on the US debt ceiling deal also needs consideration after a vote in favor of the debt ceiling deal.

EUR/USD Price Action

This morning, the EUR/USD was down 0.02% to $1.06868. A mixed start to the day saw the EUR/USD rise to an early high of $1.06972 before falling to a low of $1.06801.

EUR/USD Technical Indicators

Resistance & Support Levels

The EUR/USD has to avoid the $1.0686 pivot to target the First Major Resistance Level (R1) at $1.0738. A move through the Wednesday high of $1.07357 would signal a bullish session. However, the EUR/USD needs the debt ceiling news and economic indicators to support a breakout session.

In the case of an extended rally, the bulls will likely test the Second Major Resistance Level (R2) at $1.0787. The Third Major Resistance Level (R3) sits at $1.0888.

A fall through the pivot would bring the First Major Support Level (S1) at $1.0637 into play. However, barring a risk-off-fueled sell-off, the EUR/USD pair should avoid sub-$1.06 and the Second Major Support Level (S2) at $1.0586. The Third Major Support Level (S3) sits at $1.0485.

Looking at the EMAs and the 4-hourly chart, the EMAs sent bearish signals. The EUR/USD sits below the 50-day EMA ($1.07405). The 50-day EMA fell back from the 200-day EMA, with the 100-day EMA pulling back from the 200-day EMA, delivering bearish signals.

A move through R1 ($1.0738) and the 50-day EMA ($1.07405) would give the bulls a run at R2 ($1.0787). However, failure to move through the 50-day EMA ($1.07405) would leave S1 ($1.0637) in 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 busy day on the US economic calendar.

ADP nonfarm employment change, initial jobless claims, and the ISM Manufacturing PMI will move the dial. While investors are pricing in a more dovish Fed, solid labor market numbers could refuel bets on a 25-basis point June interest rate hike.

According to the CME FedWatch Tool, the chances of a 25-basis point interest rate hike tumbled from 66.6 to 26.4% on Wednesday as the markets responded to Fed chatter that favored a June pause.

However, FOMC members and US debt ceiling-related news will also need consideration later today.