EUR/USD coming up for a breath of air in support

• ECB and Fed are in focus with critical data to end the week.
• EUR/USD holding up at critical support in the hourly chart.

EUR/USD is trading around 1.1624 and between the 1.1620 and 1.1628 tight range in Tokyo trade in what has been a very quiet session so far for Asia. However, the end of the week for European and US markets will bring plenty of key data for which could still some volatility for traders to enjoy. 

As with the Uk and US and many other parts of the world, supply chain problems and surging energy prices are hitting growth and rising inflation in the eurozone. This is a complicated mix for policymakers at the European Central Bank and the forthcoming October Markit manufacturing PMIs for Europe and Germany will be important. 

Looking over the past data, the eurozone economy has performed well in the second and third quarters, however, growth has likely peaked at this juncture which makes for new challenges for the ECB. ''The October services PMIs should remain robust with delta less of an issue for the region,'' analysts at Westpac argued. In the US, the October Manufacturing and services PMIs are expected to print at healthy levels despite global uncertainties and delta being a higher risk to activity in the US, the analysts said. 

ECB in focus

Meanwhile, the markets night be overpricing the odds of a hawkish central bank. Earlier this week, Chief Economist Lane pushed back against market pricing for ECB tightening. The swaps market is pricing in 10 bp of tightening over the next year, according to Bloomberg. 

Lane explained that “if you look at the market pricing of the forward interest rate curve, I think it’s challenging to reconcile some of the market views with our pretty clear rate forward guidance.”  He also argues that the medium-term outlook for inflation remains below the ECB’s target. 

Traders will look ahead to the next policy meeting that is October 28 and will be expecting clues around QE which will likely be determined at the December meeting. In balance, the Federal Reserve is due to meet in November and markets expect a taper announcement. Data leading into the event will be key with respect to ideas for how the economy is shaping up against the threat of stagflation risks. 

EUR/USD technical analysis

Bulls are taking back control from support and the price is heading into the Fibonacci retracements frm where bears could emerge at hourly resistance.