Euro price outlook: EUR/USD near key resistance as big week begins

EUR/USD Talking Points:

• EUR/USD closed last week above the 1.1000 handle after spending the past few weeks tangled in a zone of longer-term resistance.
• This week brings a plethora of drivers to the fore with tomorrow’s European CPI leading into Services PMI data out of the US on Wednesday morning. And then the FOMC rate decision on Wednesday afternoon leads into the European Central Bank rate decision scheduled for the following morning. And then Friday is a big day with the release of both US Non-farm Payrolls and Canadian jobs data scheduled for 8:30 AM ET.
• I’ll be discussing these themes in-depth in the weekly webinar on Tuesday at 1PM ET. It’s free for all to register: Click here to register.

EUR/USD continues to hang around the 1.1000 level and at this point we can say that this was something that remained for the back-half of April trade.

Last week saw buyers attempt to take control while driving price up to a fresh yearly high. But buyers were noticeably absent after mounting above prior resistance and this led to another pullback to test below the 1.1000 handle.

This sets the stage for a massive week of headline risk. We’ve already seen the Manufacturing PMI report out of the United States for today, but tomorrow brings European CPI for the month of April which should remain a big factor for Euro trends. The day after brings Services PMI out of the United States but it’s what’s on the calendar for later in the day that needs to be planned around, as the FOMC is set to announce their rate decision for the month of May. This could be messy as there’s a wide expectation for a 25 basis point hike but the bigger question is what happens next:  And this is not a quarterly rate decision, meaning that there will not be updated projections and forecasts to work off of, so we’re likely going to have to operate off of the clues dropped in the accompanying press conference from Chair Powell.

Thursday morning brings another major event with the European Central Bank’s rate decision for the month of May, with focus on a possible 50 bp hike from the ECB. The ECB no longer provides forward guidance so, again, clues from the accompanying press conference will likely set the tone for forward-looking Euro price action.  And then Friday morning brings Non-farm Payrolls which is released at the exact same time as Canadian job numbers, which can make for an especially busy period in the US Dollar and related markets.

The net of all this headline risk is considerable potential: There will be multiple opportunities over the next week for reversals to show up or for new trends to establish themselves. This greater potential for volatility can also lead to false breakouts and both bull/bear traps, so it’s important to remain open minded as a trend produced from one headline risk event could quickly be erased by the next move produced by the next item on the economic docket.

In EUR/USD, the big question is whether a trend re-appears after the pair has spent the past few weeks tangled at a key zone of resistance. This is around the psychological level of 1.1000, which has held back bulls since first coming back into play in February. Buyers attempted to run a breakout last week and did set a fresh yearly high; but follow-through buying pressure was notably absent and this led to price quickly pulling back to the 1.1000 level.

EUR/USD Weekly Price Chart

EUR/USD Resistance Test

EUR/USD set its current three month low in the middle of March, just a few days after the banking crisis began to appear in the United States. Along with that banking crisis came lower US Treasury yields and falling expectations for FOMC rate policy in the second half of this year. The Fed, to date, has remained mum on the topic of any rate cuts later in 2023 but markets nonetheless continue to hold the expectation for such.

That’s helped the US Dollar to remain relatively weak, still trading near key support as looked at in this week’s US Dollar Price Action Setups. That relates to EUR/USD, which holds very near that longer-term resistance as USD and DXY remains near that longer-term support.

The big question for the end of this week is whether that relationship shifts as both the Fed and ECB will be taking a key role in this week’s headline risk. The Fed is expected to be somewhat dovish in the latter-portion of this year while the ECB is expected to remain hawkish in effort of further stemming European inflation.

From EUR/USD price action, supports remain at 1.0930 and then 1.0802. If bears can elicit a breach below the latter level, then we’ll also have a test of the trendline taken from the September 2022 swing low connected to the March swing low, which would then open the door for a test of support at 1.0713.

Big picture, it’s the 1.0500 level that sticks out as this has been a factor twice already in 2023 trade; in the first week of the year and then again in mid-March, when buyers cane in before the big figure could trade before pushing price up to a fresh yearly high.

EUR/USD Daily Price Chart

EUR/USD Bullish Scenarios

Taking a step back to the weekly chart and we can see some considerable activity taking place above the 1.1000 handle which has helped the big figure to function as some form of resistance over the past few months. So, logically, with that price holding as resistance it remains as a potential item of interest. 

There’s another side to the setup, however, and this is something that’s always worth keeping in mind, and this is related to the persistence of bulls to continually push price right back into this key area of resistance. With enough motivation this week, bulls might finally get what they’ve been waiting for to allow for a topside break of this zone, which would likely be related to a support test or break in the USD and DXY theme, as well.

From the weekly chart in EUR/USD, a test at the support level around 1.0927 could keep the door open for bulls, with the next key resistance at the 1.1186 level. Beyond that, there’s a prior swing around the 1.1272 level that’s of interest for follow-through resistance.

EUR/USD Weekly Chart

--- written by James Stanley, Senior Strategist