May 28

EUR/USD holds gains below 1.0900 ahead of US data, Fedspeak

EUR/USD is consolidating its recovery below 1.0900 in the European session on Tuesday. Broad US Dollar weakness, easing Eurozone inflation expectations and a cautious market mood cap the pair's upside. The focus is now on US sentiment data and more Fedspeak.  

Technical Overview

EUR/USD could face stiff resistance at 1.0890-1.0900 area, where the Fibonacci 78.6% retracement of the latest downtrend and the mid-point of the ascending regression channel meet. If the pair clears that level and starts using it as support, it could target 1.0940 (upper limit of the ascending channel) and 1.0970 (beginning point of the downtrend, static level).

On the downside, supports could be seen at 1.0830 (lower limit of the ascending channel), 1.0810 (100-day Simple Moving Average) and 1.0750 (200-period Simple Moving Average on the 4-hour chart).


Fundamental Overview

EUR/USD gained traction during the American trading hours on Monday and closed the day in positive territory. The pair holds comfortably above 1.0850 on Tuesday but could have a hard time clearing 1.0890-1.0900 area.

Following a three-day weekend in the US, US stock index futures trade higher early Tuesday, pointing to an improving risk mood. In turn, the US Dollar is struggling to stay resilient against its major rivals.

Meanwhile, Federal Reserve (Fed) Bank of Minneapolis President Neel Kashkari told CNBC on Tuesday that the Fed should wait for significant progress on inflation before lowering the policy rate, per Reuters. Kashkari added that the central bank could potentially even hike interest rates if inflation fails to come down further. These comments, however, failed to help the USD gather strength.

In the second half of the day, the Conference Board will release the Consumer Confidence Index for May. In case there is a significant improvement in this data, the USD could hold its ground and limit EUR/USD's upside. Later in the American session, San Francisco Fed President Mary Daly and Fed Governor Lisa Cook will be delivering speeches. In case Fed officials continue to push back against the market expectation for a rate reduction in September, the USD could find demand. 

According to the CME FedWatch Tool, markets are currently pricing in a nearly 50% probability that the Fed will leave the policy rate unchanged in September.