May 15

EUR/USD holds above 1.0800 ahead of US inflation data

EUR/USD stays in positive territory above 1.0800 after registering its highest daily close in over a month on Tuesday. The data from the Eurozone showed that the GDP grew at an annual rate of 0.4% in Q1. Focus shifts to April inflation report from the US.

Technical Overview

EUR/USD holds comfortably above 1.0790-1.0800, where the 50-day and the 200-day Simple Moving Averages (SMA) align. In the meantime, the Relative Strength Index (RSI) indicator on the 4-hour chart holds above 70, pointing to overbought conditions. Nevertheless, sellers are likely to remain on the sidelines in case 1.0790-1.0800 area holds as support.

On the upside, 1.0865 (static level) aligns as interim resistance before 1.0890-1.0900 (Fibonacci 78.6% retracement of the latest downtrend, psychological level) and 1.0960 (beginning point of the downtrend).

If the pair returns below 1.0790-1.0800 area and starts using it as resistance, sellers could take action. In this scenario, 1.0740-1.0750 (Fibonacci 38.2% retracement, 200-period Simple Moving Average (SMA) on the 4-hour chart) could be seen as next support.


Fundamental Overview

EUR/USD gathered bullish momentum in the early American session on Tuesday and climbed above 1.0800. The pair extended its uptrend and touched its highest level since April 10 on Wednesday. Although the near-term technical outlook points to overbought conditions for the pair, buyers could retain control in case inflation data from the US come in below expectations.

The US Bureau of Labor Statistics (BLS) reported on Tuesday that the Producer Price Index (PPI) rose 2.2% on a yearly basis in April, following the 1.8% increase recorded in March. This print matched the market expectation but failed to provide a lasting boost to the US Dollar (USD). Meanwhile, Fedral Reserve (Fed) Chairman Jerome Powell reiterated that they might have to stick to the restrictive policy for longer than expected to bring inflation down toward the 2% target. 

Later in the day, the BLS will release the Consumer Price Index (CPI) data for April. Markets expect the core CPI to rise 0.3% on a monthly basis. A reading of 0.4% or higher could cause investors to refrain from pricing in a rate cut in September and allow the USD to gather strength. On the other hand, a soft monthly core CPI print of 0.2% or lower could cause the USD selloff to pick up steam.

According to the CME FedWatch Tool, investors are currently pricing in a nearly 35% probability that the Fed will leave the policy rate unchanged in September. This market positioning suggests that the USD is facing a two-way risk ahead of the data release.