EUR/USD and a Breakout from $1.1050 in the Hands of US Inflation

Highlights

• The EUR/USD had a bullish start to the day, with bets on softer US inflation driving buyer appetite.
• It is a quiet day on the European economic calendar, with finalized inflation numbers from Spain unlikely to move the dial.
• However, the US CPI Report and ECB Chief Economist Philip Lane will move the dial later in the session.

It is a quieter day ahead for the EUR/USD. Finalized inflation numbers from Spain should have a limited impact on the EUR, with the numbers unlikely to influence the ECB’s monetary policy outlook.

However, ECB commentary will draw interest later in the day. ECB Chief Economist Philip Lane is on the calendar to speak. With the markets expecting a July move, ECB references to the September monetary policy meeting will influence.

The US Session

It is a big day on the US economic calendar. The US CPI Report will be in focus this afternoon. Sticky inflation would fuel bets on a September interest rate hike. This week, less hawkish Fed commentary weighed on the greenback. Economists forecast the US annual inflation rate to soften from 4.0% to 3.1%.

However, beyond the CPI Report, investors should continue to monitor Fed chatter. FOMC Members Neil Kashkari and Raphael Bostic speak after the CPI Report.

Despite the recent Fed chatter, the bets on July and September interest rate hikes remained steady. According to the CME FedWatch Tool, the probability of a 25-basis point July Fed rate hike was 92.4% versus 93.0% on Monday. Significantly, the chances of the Fed lifting rates to 5.75% in September stood at 22.2%, down from 22.3% on Monday.

We expect the CPI report to materially influence investor sentiment toward Fed monetary policy.

EUR/USD Price Action

Daily Chart

The Daily Chart showed the EUR/USD avoided a fall below the $1.10 psychological resistance level and broke through the upper level of the $1.1000 – $1.1025 resistance band.

Looking at the EMAs, the EUR/USD sat above the 50-day ($1.08794) and 200-day ($1.07351) EMAs, signaling bullish momentum over the near and longer term.

Notably, the 50-day EMA pulled further away from the 200-day EMA and reflected bullish momentum.

Looking at the 14-Daily RSI, the 63.71 reading signaled a bullish trend, aligned with the 50-day EMA. A hold above the resistance band and the 50-day EMA ($1.08794) would support a breakout from $1.1050 to target $1.1100.

4-Hourly Chart

Looking at the 4-Hourly Chart, the EUR/USD held above the $1.10 psychological level and the $1.1000 – $1.1025 resistance band.

The EUR/USD sits above the 50-day ($1.09388) and 200-day EMA ($1.08856), sending bullish near and longer-term signals.

Significantly, the 50-day EMA pulled further away from the 200-day EMA, signaling a run at $1.11.

The EUR/USD must avoid sub-$1.10 to target $1.11. However, a fall through the resistance band would bring $1.0950 and the 50-day EMA ($1.09388) into view.

The 14-4H RSI reading of 67.58 indicates bullish sentiment. Notably, the RSI aligns with the 50-day EMA, supporting a run at $1.11.