The Greenback has gained just over 100 basis points on the Euro this week, primarily on the back of sticky U.S. core producer inflation. Month-on-month Core PPI came in as expected at 0.2%, although picking up steam from the prior month. Probabilities of a Fed rate Pause declined from 99.6% on Wednesday to 85.8% today, with the difference leaning towards a rate hike as a result.
The upcoming week is relatively quiet on the U.S. economic calendar, with only retail sales and weekly labour market reports as the higher priority and main events of the week. The Euro Area is similar, with April’s CPI and Inflation rate expected next week.
The EURUSD currency pair moved into a downtrend on the 4H chart, with the price crossing below the 100-day moving average, as the Greenback found some favour. Support and resistance were established at the 1.09094 and 1.10935 levels, respectively. A descending channel pattern formed as the market rejected resistance to take the price back to its support.
Volumes subsided near support, signalling that there could be less enthusiasm in seeing the pair through the downside. With RSI conditions pointing to oversold levels, a reversal is probable, and bullish traders could be in contention to buy into the pair at support with the aim of taking profit at the 1.10935 level.
Alternatively, if a breakdown below the support level occurs on high volumes, a leg down is probable. Bearish traders will likely look to the 1.08292 level as a point of interest.
Given that the EURUSD currency pair is trading at support, the 1.09094 level will be crucial in determining which direction the pair will go next. The Greenback could either continue strengthening with a break through the support level, or the Euro will be supported at the level if buyers sweep in. Traders will closely monitor price action at this level to make the next move.
Sources: CME FedWatch Tool, Reuters, TradingView