EUR/USD to Target a Return to $0.97 on Hawkish ECB Chatter

It was a busier start to the European session for the EUR. Economic data included German consumer sentiment and French consumer confidence numbers.

The German GfK Consumer Climate Indicator fell from -36.5 to -42.5 in October. Economists forecast a decline to -39.0.

According to the GfK report,

• Income expectations fell from 22.4 points to a record low of -67.7 points, which sent the headline figure into the deep red.
• The propensity to buy fell for an eighth consecutive month. A 3.8-point fall left the indicator at -19.5 points, the lowest value since October 2008.
• Economic expectations also hit reverse, falling 4.3 points to -21.9, its lowest value since May 2009.
• According to the report, there is an increasing fear that the German economy will slip into a recession.

In France, the consumer confidence index fell from 82 to 79. Economists forecast a decline to 80.

While the stats drew interest, ECB President Lagarde also spoke this morning. Lagarde said,

“We will do what we have to do, which is to continue hiking interest rates in the next several meetings. Our primary goal is not to reduce growth, put people on the dole or create a recession. Our primary objective is price stability.”

Slovak central bank governor Peter Kazimir reportedly favored a 75-basis point rate hike at the next meeting. However, Kazimir caveated his comment by saying that it was also necessary to wait for fresh data.

Later today, ECB member Frank Elderson will speak. The markets will look for any comments on the economic outlook, inflation, and monetary policy. Sensitivity to central bank chatter has heightened, making the EUR/USD pair more sensitive to commentary from both sides of the Atlantic.

EUR/USD Price Action

At the time of writing, the EUR was down 0.45% to $0.95498. A mixed start to the day saw the EUR/USD rise to an early high of $0.96006 before falling to a low of $0.95358.

The EUR fell through the First Major Support Level (S1) at $0.9551.

Technical Indicators

The EUR/USD needs to move through S1 and the $0.9611 pivot to target the First Major Resistance Level (R1) at $0.9653 and the Tuesday high of $0.96708.

However, risk appetite will need to improve throughout the session to support a EUR/USD breakout from $0.9650. In the case of a breakout session, the EUR would likely test resistance at $0.97 and the Second Major Resistance Level (R2) at $0.9713.

The Third Major Resistance Level (R3) sits at $0.9814.

Failure to move through S1 and the pivot would leave the Second Major Support Level (S2) at $0.9509 in play. However, barring a market flight to safety, the EUR/USD pair would likely avoid sub-$0.9500. S2 should limit the downside.

The Third Major Support Level (S3) sits at $0.9408.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bearish signal. The EUR/USD sits below the 50-day EMA, currently at $0.97650. The 50-day EMA slid back from the 100-day EMA, with the 100-day EMA falling back from the 200-day EMA, delivering bearish signals.

A EUR/USD move through R1 ($0.9653) and R2 ($0.9713) would give the bulls a run at the 50-day EMA ($0.97650). The 200-day EMA sits at $0.99614. However, failure to move through the 50-day EMA would leave the EUR/USD under pressure.

The US Session

It is a busy day ahead on the US economic calendar. Housing sector numbers are due out along with goods trade data. However, the stats are unlikely to influence the dollar or market risk sentiment.

Fed Chair Powell will be the key driver through the US session. Powell will deliver welcoming remarks at the 2022 Community Banking Research Conference.

Any comments relating to the economic outlook, inflation, and monetary policy will impact the global financial markets. FOMC members Bullard and Bowman will also speak today.

Monetary policy divergence and sentiment towards the global economic outlook support a DXY return to 115 near-term. The dynamic is unlikely to shift until a marked deterioration in US labor market conditions and a sharp slowdown in consumption.