EUR/USD and a Return to $1.07 in the Hands of US Inflation and the Fed

It is a relatively busy day for the EUR/USD on the economic calendar. Italian consumer and business confidence figures will draw interest early in the European session.

In Germany, business and consumer confidence have improved. Sentiment improved despite recessionary fears, rising interest rates, the war in Ukraine, and inflationary pressures.

This week, German business and consumer sentiment figures gave hope of a possible shift in the economic outlook. Hopes of softening inflationary pressures and a milder economic recession have supported the pickup in sentiment.

The markets will look for a similar trend in Italy to support hopes of a pickup in business activity and consumer spending. Economists forecast the business confidence index to rise from 102.5 to 102.7 and the consumer confidence index to increase from 98.1 to 98.5. Better-than-expected numbers would deliver EUR/USD support.

However, investors may hold back from taking positions ahead of the US session. Key stats from the US will decide the fate of the EUR/USD today.

With the holidays approaching, ECB member commentary would also need monitoring. However, no ECB members are speaking today, leaving the markets to monitor chatter with the media.

EUR/USD Price Action

At the time of writing, the EUR was up 0.06% to $1.05987. A bullish start to the day saw the EUR/USD rise to an early high of $1.06012 before easing back.

Technical Indicators

The EUR/USD needs to move through the $1.0608 pivot to target the First Major Resistance Level (R1) at $1.0643 and the Thursday high of $1.06593. Better-than-expected stats from Italy would provide support ahead of the US session.

In the case of an extended rally, the bulls will likely test the Second Major Resistance Level (R2) at $1.0694 and resistance at $1.07. The Third Major Resistance Level (R3) sits at $1.0780. Softer US inflation and personal spending numbers should deliver a EUR/USD breakout.

Failure to move through the pivot would leave the First Major Support Level (S1) at $1.0557 in play. However, barring a risk-off-fueled sell-off, the EUR/USD pair should avoid sub-$1.05. The Second Major Support Level (S2) at $1.0522 should limit the downside.

The third Major Support Level (S3) sits at $1.0436.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bullish signal. The EUR/USD sits at the 50-day EMA ($1.06001). The 50-day EMA narrowed to the 100-day EMA, while the 100-day EMA widened from the 200-day EMA, delivering mixed signals.

A breakout from the 50-day EMA ($1.06001) would support a move through R1 ($1.0643) to target R2 ($1.0694) and $1.07. However, failure to move through the 50-day EMA ($1.0601) would support a fall through S1 ($1.0557) to bring the 100-day EMA ($1.05462) and S2 ($1.0522) into view. The 200-day EMA sits at $1.04210.

The US Session

It is a busy day ahead, with inflation, personal spending, durable goods orders, and consumer sentiment numbers due out. The inflation and the spending figures should have the most influence. However, investors will need to look out for any revisions to the Michigan Inflation Expectations Index.

Last week, the hawkish Fed rate hike and FOMC economic projections created uncertainty toward Fed monetary policy. Today’s inflation and personal spending figures could provide the markets with more clarity.

Economists forecast weaker personal spending and softer inflation, which would be DXY negative and EUR/USD positive.

The markets will also need to consider FOMC member chatter.