EUR/USD at Risk of Sub-$1.07 on US Inflation and Hawkish Fed Bets

It is a quiet day ahead for the EUR/USD. There are no euro area economic indicators to provide the EUR/USD with direction today.

The lack of economic indicators will leave the EUR/USD in the hands of market risk sentiment ahead of the US session.

However, US debt ceiling-related news and central bank chatter will influence.

ECB Chief Economist Philip Lane and ECB Executive Board member Andrea Enria are on the calendar to speak today. Philip Lane will participate in a panel discussion on how quickly inflation will return to target, which will likely draw plenty of interest.

EUR/USD Price Action

This morning, the EUR/USD was up 0.08% to $1.07342. A mixed start to the day saw the EUR/USD fall to an early low of $1.07178 before rising to a high of $1.07373.

Technical Indicators

Resistance & Support Levels

The EUR/USD has to avoid the $1.0730 pivot to target the First Major Resistance Level (R1) at $1.0752 and the Thursday high of $1.07567. A return to $1.0750 would signal a bullish session. However, the EUR/USD needs US economic indicators, central bank chatter, and debt ceiling news to support a breakout session.

In the case of an extended rally, the bulls will likely test the Second Major Resistance Level (R2) at $1.0779 and resistance at $1.08. The Third Major Resistance Level (R3) sits at $1.0829.

A fall through the pivot would bring the First Major Support Level (S1) at $1.0703 into play. However, barring a risk-off-fueled sell-off, the EUR/USD pair should avoid sub-$1.0650. The Second Major Support Level (S2) at $1.0680 should limit the downside. The Third Major Support Level (S3) sits at $1.0630.

Looking at the EMAs and the 4-hourly chart, the EMAs sent bearish signals. The EUR/USD sits below the 50-day EMA ($1.07996). The 50-day EMA pulled back from the 200-day EMA, with the 100-day EMA easing back from the 200-day EMA, delivering bearish signals.

A move through R1 ($1.0752) would give the bulls a run at R2 ($1.0779) and the 50-day EMA ($1.07996). However, failure to move through the 50-day EMA ($1.07996) would leave S1 ($1.0703) 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. Core durable goods orders, Core PCE Price Index, personal spending/income, and Michigan consumer sentiment numbers will be in focus.

We expect the Core PCE Price Index numbers to have the most impact. Sticky inflation would fuel bets of a 25-basis point Fed interest rate hike in June and ease expectations of an H2 interest rate cut.

Economists forecast the Core PCE Price Index to increase by 4.6% year-over-year in April versus 4.6% in March.

While the numbers will draw interest, a lack of progress toward raising the debt ceiling would limit the influence on sentiment toward the June interest rate decision. A US default would force the Fed to hit the brakes on tackling inflation.

According to the CME FedWatch Tool, the probability of a 25-basis point Fed interest rate hike in June jumped from 36.4% to 52.2% on Thursday. Better-than-expected labor market and GDP numbers supported the shift in sentiment ahead of today’s inflation numbers.