EUR/USD vulnerable to upbeat US retail sales report

EUR/USD Outlook

EUR/USD snaps back from a fresh weekly high (1.0805) amid the smaller-than-expected slowdown in the US Consumer Price Index (CPI), and the exchange rate may struggle to retain the rebound from the monthly low (1.0656) as the US Retail Sales report is anticipated to show a rebound in household spending.

EUR/USD vulnerable to upbeat US retail sales report

The update from the US Bureau of Labor Statistics (BLS) showed both the headline and core CPI narrowing in January, with the report revealing that ‘categories which increased in January include the shelter, motor vehicle insurance, recreation, apparel, and household furnishings and operations indexes.’

FOREX.com Economic Calendar

Signs of sticky price growth may force the Federal Reserve to pursue a more restrictive policy especially as the 517K rise in Non-Farm Payrolls (NFP) underscores a robust labor market, and EUR/USD may struggle to hold its ground ahead of the next meeting in March as Fed officials continue to strike a hawkish forward guidance for monetary policy.

Recent remarks from Fed Governor Michelle Bowman, a permanent voting member on the Federal Open Market Committee (FOMC), suggest the central bank will tolerate a more restrictive policy as she acknowledges that ‘it will be necessary to further tighten monetary policy,’ and it remains to be seen if Fed officials will project a steeper path for US interest rates as the central bank is slated to update the Summary of Economic Projections (SEP) next month.

Until then, data prints coming out of the US may sway EUR/USD as the economic docket for the Euro Area remains fairly light for the reminder of the month, and a material rise in Retail Sales may generate a bullish reaction in the Greenback as the economy shows little indications of a looming recession.

With that said, EUR/USD may struggle to retain the advance from the monthly low (1.0656) amid speculation for a more hawkish Fed in March, and the exchange rate may no longer respond to the positive slope in the 50-Day SMA (1.0716) if it fails to hold above the moving average.

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Euro Price Chart – EUR/USD Daily

Chart Prepared by David Song, Strategist; EUR/USD on TradingView

EUR/USD bounces back from a fresh monthly low (1.0656) to trade back above the 50-Day SMA (1.0716), and the recent series of higher highs and lows may push the exchange rate towards the 1.0880 (23.6% Fibonacci extension) to 1.0940 (50% Fibonacci retracement) region as it clears last week’s high (1.0799).
However, EUR/USD may no longer track the positive slope in the moving average after failing to test the April 2022 high (1.1076) earlier this month, with a break/close below 1.0610 (38.2% Fibonacci retracement) opening up the January low (1.0483).
Next area of interest coming in around the December 2022 low (1.0393), with a break/close below 1.0370 (38.2% Fibonacci extension) raising the scope for a test of the 200-Day SMA (1.0324).

--- Written by David Song, Strategist

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