Euro Braces for EZ CPI & Fed Rate Announcement

EUR/USD ANALYSIS

• ECB speakers in focus today.
• Hawkish Fed may sustain EUR/USD downside.
• Channel support and swing low being eyes by bears – 1.05 on the cards?

EURO FUNDAMENTAL BACKDROP

The euro opened relatively flat this Monday morning ahead of a big data week for both the euro area and US respectively. Today’s trading day is expected to be muted due to a lack of high impact economic data but European Central Bank (ECB) speakers including the ECB’s de Guindo’s and Panetta, should stoke some volatility through EUR crosses.

The primary focus points for the week ahead begins tomorrow with the euro area CPI report, and another decline could weigh negatively on the EUR. PMI’s out of EZ and Germany are expected to remain weak although Friday’s announcement by Fitch stating that Germany continues under the AAA credit rating thus suggesting a positive and stable outlook for the EZ’s largest economy.

From a US perspective, the Fed’s interest rate decision on Wednesday will be the standout risk event for the week. With markets expecting the Fed to hold rates with almost 100% certainty, markets will be interested in Fed Chair Jerome Powell’s messaging in subsequent meetings. Prior meetings saw little indication from Mr. Powell and I expect this meeting to follow a similar trend. Incoming data dependency will likely be reinforced with scope for an additional hike should circumstances demand.

In summary, the US economy is far stronger than the EZ and it shows via central bank pricing and guidance. This is likely to grow and keep the greenback elevated against the euro until such time as the US economy starts showing cracks in the inflationary and labor environments.

ECONOMIC CALENDAR (GMT+02:00)

Source: Refinitiv

TECHNICAL ANALYSIS

EUR/USD DAILY CHART

Chart prepared by Warren Venketas, IG

The daily EUR/USD chart above shows bears being rejected once more at channel support (black) coinciding with the 1.0635 swing low. Another retest could thin this support zone resulting in a push lower. Fundamental factors mentioned above will be the catalyst should this take place (hawkish Fed + lower EZ inflation). The fact that the pair is yet to reach oversold territory on the Relative Strength Index (RSI), leaves additional downside on the cards, possibly exposing the 1.0500 psychological handle.

Resistance levels:

• 1.0800
• 1.0767
• Wedge resistance

Support levels:

IG CLIENT SENTIMENT DATA: MIXED

IGCS shows retail traders are currently neither NET LONG on EUR/USD, with 70% of traders currently holding long positions (as of this writing). Download the latest sentiment guide (below) to see how daily and weekly positional changes affect EUR/USD sentiment and outlook.

Contact and followWarrenon Twitter:@WVenketas