EUR/USD Gains After Weak US Retail Sales but US PPI Poses Threat to Recovery

EUR/USD advanced on Thursday, climbing for the second straight day after bouncing off the psychological 1.0700 level earlier in the week, supported in part by disappointing U.S. economic data. For context, U.S. retail trade figures showed that sales contracted 0.8% in January, well below expectations calling for a more modest decline of 0.1%.

Weaker consumer spending in isolation could provide justification for the Federal Reserve to expedite interest rate cuts as a preemptive strategy to prevent a possible downturn in gestation. However, in the current context of persistently high and sticky consumer prices, policymakers are unlikely to overreact to a single report.

With the Fed laser-focused on restoring price stability and giving more weight to this part of its mandate for now, traders should pay close attention to the producer price index figures to be released on Friday. According to estimates, January's headline PPI cooled to 0.6% y/y from 1.0% previously, while the core gauge moderated to 1.6% from 1.8% in December.

Should PPI data echo the CPI report published earlier in the week, which revealed a stall in disinflationary progress, we could see the U.S. dollar pivot to the upside as markets shift the timing of the first FOMC rate cut further away and reduce easing expectations for the year. In this scenario, EUR/USD could quickly resume its retreat.

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EUR/USD FORECAST – TECHNICAL ANALYSIS

EUR/USD extended its recovery on Thursday after bouncing off support around the 1.0700 mark earlier in the week. If gains accelerate in the coming days, confluence resistance near 1.0800 will be the first barrier against further advances. Above this area, the focus will be on the 200-day simple moving average at 1.0825, followed by 1.0890, the 50-day simple moving average.

On the flip side, if sellers return and trigger a bearish reversal, initial support looms at 1.0700, as noted above. Bulls will need to vigorously defend this floor; failure to do so could usher in a pullback towards 1.0650. Additional losses beyond this threshold could reinforce downward momentum, setting the stage for a drop toward 1.0520.

EUR/USD CHART – TECHNICAL ANALYSIS