EUR/USD Forecast: US Dollar advances as markets anticipate a hawkish Fed

EUR/USD Current price: 1.0703

• German and EU Gross Domestic Product improved modestly in the first quarter of the year.
• United States Consumer Confidence is expected to have shrunk in April.
• EUR/USD maintains a neutral stance around the 1.0700 threshold as wait-and-see continues.

The EUR/USD pair keeps trading within familiar levels around the 1.0700 mark as market players refrain from placing strong bets ahead of first-tier United States (US) events. Stocks trade mixed, with Asian indexes edging higher but European ones turning red ahead of Wall Street’s opening. The latter is set to end April with sharp losses despite an encouraging earnings season, as the focus remains on central banks.

The US Federal Reserve (Fed) is holding its monetary policy meeting and will unveil its decision on Wednesday. The Fed is expected to keep interest rates unchanged and deliver a hawkish message, hinting that rate cuts will still have to wait. The reasoning is backed by softer-than-anticipated growth-related figures and persistent inflation above the central bank’s goal.

Additionally, the macroeconomic calendar will be packed with employment figures. The US will release the ADP survey on private job creation, the JOLTS Job Openings report, and finally, the Nonfarm Payrolls (NFP) report on Friday. Concerns revolve around inflation, but it’s worth remembering that the Fed has a dual mandate to achieve maximum employment and keep prices stable. The labor market in the US has been relatively tight, which is good news on the one hand but, at the same time, implies higher inflationary risks.  

European data released early on Tuesday has been generally positive. Germany reported that March Retail Sales were up 0.3% YoY and 1.8% MoM in March, much better than the February contraction. Also, the preliminary estimate of the Q1 Gross Domestic Product (GDP) indicated a 0.2% annualized advance in the three months to March, better than 0.1% expected. Finally, the Eurozone Q1 GDP for the same period resulted at 0.3%, beating the 0.1% anticipated. Finally, the Harmonized Index of Consumer Prices (HICP) held at 2.4% YoY in April.

The US Dollar found some near-term demand following the release of the Q1 Employment Cost Index, which unexpectedly rose to 1.2% from the previous 0.9%, another sign of hot inflationary pressures. The country will soon release the CB Consumer Confidence, foreseen in April at 104.0, down from 104.7 in March. Market conditions will turn thinner afterwards, ahead of the widespread Labor Day holiday on May 1.

EUR/USD short-term technical outlook

From a technical point of view, the EUR/USD pair is neutral. The daily chart shows a modest intraday decline, with EUR/USD standing a handful of pips below a bearish 20 Simple Moving Average (SMA). The 100 and 200 SMAs lack clear directional strength but stand far above the shorter one, skewing the risk to the downside. Finally, the Momentum indicator advances but remains below its midline, while the Relative Strength Index (RSI) indicator stands directionless at around 45, suggesting absent buying interest.

EUR/USD is neutral-to-bearish in the near term. In the 4-hour chart, the pair is developing around a bearish 100 SMA and below the 20 and 200 SMAs. In the meantime, technical indicators continue seesawing around their midlines, grinding marginally lower, although they lack enough strength to confirm a new leg south. Bears can gain some traction if the pair falls below 1.0685, the immediate support level.

Support levels: 1.0685 1.0640 1.0600  

Resistance levels: 1.0730 1.0775 1.0810