EUR/USD to Target $1.0950 on Eurozone Inflation and the US Debt Ceiling

It is another busy day ahead for the EUR/USD. French, German, and Italian car registration numbers will draw interest this morning. While the numbers are unlikely to influence the ECB, the stats will give investors a sense of the euro area macroeconomic environment.

Later this morning, Italian trade data will also influence ahead of prelim Eurozone inflation numbers for April. However, the Italian trade data should have a limited impact on the EUR, with inflation as the focal point. While the headline inflation figure will influence, the ECB remains focused on core inflation.

Economists forecast the core annual inflation rate to soften from 5.7% to 5.6%.

Investors should also track ECB commentary throughout the day. Hotter-than-expected inflation numbers could fuel more hawkish chatter. ECB Executive Board members Frank Elderson, Fabio Panetta, and Luis de Guindos are on the calendar to speak today.

Beyond the euro area, the US debt ceiling talks are ongoing. Progress toward a deal would deliver EUR/USD support.

EUR/USD Price Action

This morning, the EUR/USD was up 0.05% to $1.08671. A mixed start to the day saw the EUR/USD fall to an early low of $1.08589 before rising to a high of $1.08736.

Technical Indicators

Resistance & Support Levels

The EUR/USD needs to move through the $1.0874 pivot to target the First Major Resistance Level (R1) at $1.0893 and the Tuesday high of $1.09046. A return to $1.0875 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 the Second Major Resistance Level (R2) at $1.0923 and resistance at $1.0950. The Third Major Resistance Level (R3) sits at $1.0973.

Failure to move through the pivot would leave the First Major Support Level (S1) at $1.0843 in play. However, barring another risk-off-fueled sell-off, the EUR/USD pair should avoid sub-$1.08. The Second Major Support Level (S2) at $1.0824 should limit the downside. The Third Major Support Level (S3) sits at $1.0774.

Looking at the EMAs and the 4-hourly chart, the EMAs sent bearish signals. The EUR/USD sits below the 50-day EMA ($1.09266). The 50-day EMA crossed through the 200-day EMA, with the 100-day EMA narrowing to the 200-day EMA, delivering bearish signals.

A move through R1 ($1.0893) would give the bulls a run at R2 ($1.0923) and 50-day EMA ($1.09266). However, failure to move through the 50-day EMA ($1.09266) would leave S1 ($1.0843) 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 relatively quiet day on the US economic calendar.

The US housing sector will be in the spotlight, with building permits and housing start numbers in focus.

While investors can consider the housing sector a litmus test of the US macroeconomic environment, the Fed’s focus on inflation and labor market conditions should limit the impact of the numbers on the global financial markets.

With the US economic calendar on the light side, investors should track FOMC member chatter with the media. Fed Chair Powell speaks on Friday, and some members may lay the foundations for the Powell speech.