- Markets price in rate hikes from the Fed and the ECB in May.
- EUR/USD bias remains bullish, but choppy in the short term.
- The pair awaits below 1.1000 for a new catalyst.
The US Dollar failed to hold onto gains on Wednesday and boosted the EUR/USD, which climbed from 1.0915 to test the 1.0980 resistance again. In a choppy session, the pair pulled back to 1.0950. It continues to move sideways as financial markets waver.
Eurozone headline inflation was confirmed at 6.9% YoY in March. European Central Bank (ECB) officials continue to suggest more rate hikes ahead. Philip Lane, ECB Chief Economist, said a hike in May was likely, with data determining the size. Friday's S&P Global PMIs will offer new information about economic activity. Isabel Schnabel pointed out that while inflation has started to decline, underlying inflation proves sticky. On Thursday, the ECB will release the minutes of its latest meeting. A 25 bps rate hike in May is fully priced in.
Regarding the Federal Reserve (Fed), policymakers also see more hikes. James Bullard prefers 50 bps more of tightening as the labor market seems "very, very strong". Raphael Bostic favors just one more rate hike and a long pause. According to the Beige Book, economic activity was "little changed" in recent weeks. The CME FedWatch Tool shows the odds of a rate hike in May stand at 83%, up from 70% a week ago. On the US Thursday's docket are Jobless Claims, Philly Fed and Existing Home Sales.
The EUR/USD pair is waiting for the next catalyst, which could take it well above 1.1000 or trigger an extension to the downside. If market sentiment favors risk appetite, the Euro should benefit.
EUR/USD short-term technical outlook
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On the daily chart, the EUR/USD stays above a less bullish 20-period Simple Moving Average (SMA) that stands at 1.0905. During the last session, the pair has been moving sideways between 1.0900 and 1.0980, consolidating after a two-day correction. A daily close under 1.0900 should trigger an extension to the downside. On the upside, the 1.1000 area remains the key level to surpass to trigger a visit to the top.
The 4-hour chart shows EUR/USD above an uptrend line but below a bearish 20-period SMA that is flatting. Technical indicators show mixed signals. The Momentum is moving north, while the Relative Strength Index (RSI) is flat, slightly below 50. Price actions offer no clear clues, favoring further consolidation. The immediate support is seen at 1.0930 before the crucial 1.0900 area. On the upside, 1.0980 holds the key to more gains.
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