Bulls crack key barrier, awaiting US inflation data for fresh signals

The Euro advanced nearly 0.5% in early Tuesday, driven by weaker dollar ahead of release of US May inflation data.

Fresh risk appetite on expectations that inflation will cool further in May and add to Fed’s plans to stay on hold in June policy meeting which starts today, as markets are currently pricing over 80% chance that the Fed will keep interest rates unchanged.

The Euro is expected to benefit from such scenario and extend recovery from 1.0635 (May 31 low).

Conversely, higher than expected US inflation in May would sour risk sentiment on negative signals to the Fed.

Fresh rally on Tuesday cracked key resistances at 1.0805/10 zone (base of thick daily cloud / Fibo 38.2% of 1.1091/1.0635 / 100DMA) but facing strong headwinds and is likely to stay around these levels and await fresh direction signals from US CPI data.

Firm break of 1.0805/10 zone would generate strong bullish signal for extension towards Fibo barriers at 1.0863 and 1.0917 (50% and 61.8% retracement respectively).

On the other hand, failure to break higher would generate initial signal of recovery stall and shift near-term risk to the downside, with dip below 10DMA (1.0734) to confirm upside rejection.

1.0810; 1.0863; 1.0917; 1.0980
Sup: 1.0787; 1.0748; 1.0734; 1.0700