EUR/USD awaits range breakout

EUR/USD awaits range breakout

The EUR/USD has been restricted largely to a range of 100-pip range of 1.0950-1.0850 following last week’s French election relief.

The breach of the sideways trading range depends on the quality of the Eurozone PMI numbers due today and the tone of the FOMC statement to be released on Wednesday.

PMI to highlight economic resilience

Eurozone economic data have demonstrated increasing resilience in recent months, forcing Draghi to say, “The risks surrounding the euro-area growth outlook are moving towards a more balanced configuration”. However, Draghi also said last week that price pressures continue to remain subdued and have yet to show a convincing upward trend.

The final German PMI is likely to show the factory growth declined to 58.2 in April from March’s 71-month high of 58.3. The Eurozone manufacturing PMI is expected to print in line with the preliminary estimate of 56.8.

Any upside or downside revision to the headline figure and/or inflation sub indices – input costs and output costs could move the EUR pairs.

June Fed rate hike odds at 71%

The range breakout depends more on what Fed says tomorrow. The odds of the June rate hike stand at 71%, CME data shows. The markets may begin pricing-in a 258 basis point rate hike in June if the Fed’s policy statement due tomorrow makes a strong case for the same.

The resulting sell-off in the EUR/USD could be more violent if the policymakers talk about the reduction of the balance sheet size this year. A bearish break from the trading range looks likely on hawkish Fed. On the other hand, neutral Fed coupled with upbeat Eurozone PMI numbers may yield an upside break of the 100-pip trading range.

EUR/USD Technical Levels

A break above 1.0950 (upper end of the trading range) would open up upside towards 1.1050 (target as per the measured height method). However, the supply may increase around the psychological hurdle of 1.10.

On the lower side, a daily close below 1.0839 (200-DMA) could yield a pullback to 1.0777 (Apr 21 high) and 1.0736 (Apr 18 high).