Whether the EUR/USD will break above 1.10 today is largely dependent on the demand for the US dollars.
Fed June rate hike bets dropped on weak data
A weaker-than-expected US retail sales and CPI data released on Friday forced the investors to reconsider the June Fed rate hike odds. The probability of a 25 basis point rate hike in June fell from 83% to 73.8%.
However, the Fed still looks on track to hike rates in June as 73.8% probability is well above the 60% mark the Fed usually wants to see before raising rates. Moreover, higher the odds of the rate hike less would be the shock.
Furthermore, the retail sales did snap the two-month losing streak in April, which adds credence to the Fed’s view that the Q1 slowdown in the spending was ‘transitory’. Consequently, the European and the US desks may not aggressively sell the US dollars.
Oil prices jumped in Asia after Saudi Arabia and Russia reportedly expressed readiness to extend the output cut deal by 9 months to March 2018. The jump in oil prices is more likely to benefit the US dollar.
Merkel scores big win in the most populous state
Merkel’s turnaround continues… Chancellor scored an upset victory on Sunday in elections in Germany’s most populous state. That is likely to boost the odds of Merkel winning the elections due later this year. The EUR may strengthen as Merkel’s win is an additional evidence of the ‘peak populism’ in Europe.
Friday’s rally to 1.0934 following a loss of bearish momentum on Thursday near the 200-DMA level does suggest a potential for a rally to 1.10 handle and beyond.
The key resistance levels are – 1.0984 (weekly 100-MA), 1.10 (psychological level), 1.1022 (previous week’s high). Two consecutive daily close above 1.10 levels would open up upside towards 1.1123 (Sep 21 low) and 1.1142 (Nov 4 high).
The key support levels are – 1.0918 (10-DMA), 1.0830 (200-DMA). Only a daily close below the 200-DMA would signal the pull back from the recent high of 1.1022 has resumed and could yield 1.0686 (100-DMA) and 1.0569 (Apr 10 low).