EUR/USD Bears to Target Sub-$1.10 on Economic Divergence

Highlights

• It is a quieter Tuesday for the EUR/USD, with German business sentiment in focus.
• A sharp fall in the German Ifo Business Climate Index would question the ECB’s hawkish policy goals.
• The nearer-term technical indicators are bearish, with the bears eying sub-$1.1050.

On Monday, the EUR/USD fell by 0.55% to end the day at $1.10638. Disappointing flash private sector PMI numbers for France, Germany, and the Eurozone weighed on buyer appetite.

The German economy will be in the spotlight again this morning. German business sentiment numbers will be in focus. A sharper-than-expected fall in the German Ifo Business Climate Index would test buyer appetite. Economists forecast the headline Index to fall from 88.5 to 88.0.

Business confidence is a leading indicator, with weakening sentiment signaling a deteriorating macroeconomic environment. Weaker sentiment would signal a likely pullback in spending and hiring. Worsening labor market conditions would impact consumer confidence and spending.

No ECB members are on the calendar to speak today, leaving commentary with the media to move the dial.

The US Session

US consumer confidence numbers for July will move the dial this afternoon. Economists forecast the CB Consumer Confidence Index to rise from 109.7 to 111.5.

An upward trend in the US CB Consumer Confidence Index would signal a pickup in consumption that would fuel demand-driven inflationary pressure. The numbers could influence the Fed, with consumers likely responding to bets on the Fed hitting the proverbial brakes.

EUR/USD Price Action

Daily Chart

The Daily Chart showed the EUR/USD hover above the $1.1060 – $1.1015 support band. A return to $1.11 would give the bulls a run at the $1.1180 – $1.1221 resistance band. However, the EUR/USD would need to break down resistance at $1.11 to target $1.1180. A fall through the upper level of the $1.1060 – $1.1015 support band would bring sub-$1.10 and the 50-day EMA ($1.09673) into view.

Looking at the EMAs, the EUR/USD sat above the 50-day ($1.09673) and 200-day ($1.07731) EMAs, signaling bullish momentum over the near and longer term.

Notably, the 50-day EMA pulled further away from the 200-day EMA, affirming the near-term bullish trend.

Looking at the 14-Daily RSI, the 55.17 reading sent bullish price signals. The RSI aligned with the EMAs, supporting a EUR/USD run at the $1.1180 – $1.1221 resistance band.

4-Hourly Chart

Looking at the 4-Hourly Chart, the EUR/USD sits above the $1.1060 – $1.1015 support band. However, the EUR/USD remained below the 50-day EMA ($1.11293) while holding above the 200-day EMA ($1.10045), sending bearish near-term but bullish longer-term price signals.

Significantly, the 50-day EMA narrowed on the 200-day EMA, signaling a fall to sub-$1.1050 to bring the lower level of the $1.1060 – $1.1015 support band and the 200-day EMA ($1.10045) into view. However, a return to $1.11 would give the bulls a run at the 50-day EMA ($1.11293) and the $1.1180 – $1.1221 resistance band.

The 14-4H RSI at 34.55 sends bearish EUR/USD price signals. Significantly, the RSI aligns with the 50-day EMA, supporting a run at the lower level of the $1.1060 – $1.1015 support band and the 200-day EMA ($1.10045).