EUR/USD Preps for Data Heavy Week with ECB & Fed in Focus

EUR/USD ANALYSIS & TALKING POINTS

• ECB charge hike appears to be like to inflation knowledge for steering as money markets require extra conviction between a 0.25% and 0.50% increment.
• USD receives extra help from souring threat sentiment.
• Technical analysis favors euro draw back on each weekly and each day timeframes.

EURO FUNDAMENTAL FORECAST: BEARISH

The euro head into the central financial institution centered week on the backfoot however might change in the buildup to the European Central Bank (ECB) charge resolution (see financial calendar beneath). Key metrics together with eurozone core inflation and credit score knowledge will give markets worthwhile enter to research the state of the area. Thus far core inflation has remained elevated as a consequence of wage progress offsetting greater costs and is ready to stay excessive. The problem the ECB now faces is the truth that inflationary pressures have migrated from the supply-side (abating vitality costs) to demand components.

EUR/USD ECONOMIC CALENDAR

Source: DailyFX financial calendar

The query for subsequent week is probably going ‘’by how a lot will the ECB hike charges?’’. According to present money market pricing (discuss with desk beneath), there’s a 78% likelihood that the ECB will hike by 25bps. This might be a large resolution in that the ECB can re-assess financial variables forward of the June assembly as the present setting is riddled with uncertainty – primarily via elevated struggle exercise in Ukraine in addition to warning across the latest banking disaster.

ECB INTEREST RATE PROBABILITIES

Source: Refinitiv

From a US perspective, world threat aversion if sustained as a result of components outlined above could play into the safe-haven attribute of the buck. In addition, US financial knowledge displays a sturdy economic system in relation to inflation and labor. As has been the case for a while, the implied Fed funds futures suggests this can be the final hike from the Fed for 2023. Sustained robust inflation and jobs knowledge might add stress on the Fed to proceed climbing leaving the euro uncovered to additional draw back.

TECHNICAL ANALYSIS

EUR/USD WEEKLY CHART

Chart ready by Warren Venketas, IG

The weekly EUR/USD chart above appears to be like to be printing an extended higher wick. If the weekly candle closes in this vogue, just like a headstone doji or capturing star, might level to subsequent draw back for the pair. Coupled with a Relative Strength Index (RSI) approaching overbought territory, the technical options favor euro bears.

EUR/USD DAILY CHART

Chart ready by Warren Venketas, IG

Daily EUR/USD worth motion reveals the continuation of the ascending channel (black) from mid-March 2023. A break and affirmation shut beneath channel help might help the weekly indicators and convey into focus the 1.0900 psychological deal with

Resistance ranges:

Support ranges:

IG CLIENT SENTIMENT DATA: MIXED

IGCS reveals retail merchants are at present SHORT on EUR/USD, with 58% of merchants at present holding quick positions (as of this writing). At DailyFX we usually take a contrarian view to crowd sentiment however as a consequence of latest adjustments in lengthy and quick positioning, we arrive at a short-term cautious disposition.

Contact and observeWarrenon Twitter:@WVenketas