EUR/USD heads into 1.0800 resistance ahead of US inflation report

Asian Indices:

• Australia's ASX 200 index rose by 12.8 points (0.18%) and currently trades at 7,135.30
• Japan's Nikkei 225 index has risen by 611.77 points (1.89%) and currently trades at 33,045.77
• Hong Kong's Hang Seng index has risen by 78.52 points (0.4%) and currently trades at 19,482.83
• China's A50 Index has risen by 2.91 points (0.02%) and currently trades at 12,659.79

UK and Europe:

• UK's FTSE 100 futures are currently up 30.5 points (0.4%), the cash market is currently estimated to open at 7,601.19
• Euro STOXX 50 futures are currently up 30 points (0.69%), the cash market is currently estimated to open at 4,346.49
• Germany's DAX futures are currently up 106 points (0.66%), the cash market is currently estimated to open at 16,203.87

US Futures:

• DJI futures are currently up 16 points (0.05%)
• S&P 500 futures are currently up 8.75 points (0.2%)
• Nasdaq 100 futures are currently up 65.5 points (0.44%)

The US dollar was the weakest currency overnight, as traders continued to price in the potential for a soft US inflation report ahead of tomorrow’s FOMC meeting. This has seen EUR/USD come close to probing yesterday’s 3-week high and GBP/USD recoup some of yesterday’s losses.

Inflation data is the key theme for the day, beginning with German and Spanish CPI reports at 07:00 and 08:00 BST respectively. With signs of disinflation cropping up across parts of Europe, it takes some pressure off the ECB to be so aggressive with rate hikes. And whilst they’re still almost certain to raise again this week, it raises questions how many hikes are really left. The German ZEW report is also scheduled for 10:00 BST, where expectations are for business sentiment to deteriorate further, which is itself another form of disinflation. And that could help further cap the euro’s gains ahead of today’s main event, which is US inflation at 13:30 BST.

But the UK also releases employment and wage data, which could potentially move the dial between another BOE hike or pause if data comes in soft enough. With EUG/GBP positing strong gains from its cycle lows yesterday, soft wage data today could spur another bout of EUR/GBP short covering to send the pair higher still.

Oil traders have the monthly OPEC report to look forward to at 12:00, where any upgrade to its demand outlook could soften the blow from Golman Sachs price forceast yesterday, which saw WTI fall over 4% to $76.

EUR/USD 1-hour chart:

Prices have mostly remained within last week’s range, although a margin new high was seen yesterday. Still, EUR/USD continues to provide prominent support and resistance levels for bulls and bears to trade around. Prices are heading back to the range highs, which could tempt bears to return upon soft CPI data or ZEW report (and load up with an above-expected US inflation report).  In fact, fading into moves below the 1.0800 handle piques my contrarian interest, as EUR/USD has a ‘buy the rumour, sell the fact’ feeling heading into these key evens. A break or daily close above 1.0800 assumes bulls have truly regained control and opens up a move to 1.0820 and the 1.0831 high.

Economic events up next (Times in GMT+1)

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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