U.S. Retail Sales Shine, but Tariffs Dominate Outlook
EUR/USD Cools Off. ECB Cuts Rates as Trade Fears Linger
The markets are still feeling the effects of the constantly rising tariffs between the U.S. and China, adding to the fact that there is no clear roadmap regarding negotiations between the U.S. and the rest of the countries.
President Trump met with a delegation from Japan last Wednesday, although it was not a planned negotiation. He later mentioned that “big progress” has been made, without providing any other details. Nonetheless, the news brought a glimpse of optimism. A day later, Trump and Italian Prime Minister Meloni expressed confidence that the trade tensions between the US and the EU will soon deescalate.
Overall, last week was mostly uneventful in terms of economic releases but the highlight was the U.S. Retail Sales report, which showed that the economy is still in good shape. Retail Sales increased 1.4% in March, while the Core version showed a 0.5% increase.
On the other side of the pond, the European Central Bank reduced the interest rate by 25 bps and maintained a dovish tone, mostly due to the tariff tensions.
Economic Calendar Highlights
The Easter Holiday will likely affect volatility in the first part of the week, especially on Monday when most EU banks will be closed. ECB President Lagarde will speak on Tuesday at 2:00 pm GMT in an interview hosted by CNBC. It is likely that she will talk about the trade tariffs and the ECB’s monetary policy, so we can expect increased volatility during and after the interview.
Wednesday will be filled with Purchasing Managers’ Indexes (PMI) releases for Europe, the United Kingdom, and the United States. European countries will be the first to release their PMIs, starting at 7:15 am GMT, followed by the UK at 8:30 am GMT and the U.S. at 1:45 pm GMT.
The rest of the week will be slow in terms of economic releases, with low and medium-impact indicators only.
Technical Outlook – EUR/USD
The pair did manage to break the previous week’s high but it looks like the Euro’s bull run is severely overextended, which means that it may be getting ready for a pause.
On a Daily chart, the RSI has already shown bearish divergence and has crossed overbought three times during the recent rally. The pair is even overbought on a Weekly chart, so it’s fair to say that a pullback is in the works.
If the pair comes back below 1.1500, it is likely to retrace closer to 1.1200. This period continues to be dominated by tariff tensions and hopes of successful negotiations. News or rumors regarding this issue will overshadow the technical aspect and will dictate the next move.
