Currency Alert: CPI and Retail Sales Figures on Deck

EUR/USD Faces Triple Resistance Barrier.

Last week’s lack of major economic releases translated into choppy price action, with the US Dollar Index (DXY) gaining moderately but the dollar itself losing the weekly battle against the Euro. The European STOXX 600 index showed the largest weekly gain since January but EUR/USD ended the week almost where it started. Currently, markets are pricing in an 88% chance that the European Central Bank will cut rates at their June Meeting.

The Preliminary reading of the University of Michigan Consumer Sentiment survey dropped to 67.4 from the previous 77.2. The greenback inched higher after the report came out and now all eyes are on the inflation data that’s due for release this week. Currently, the CME FedWatch tool shows a 96.5% probability of the rate staying unchanged at the FOMC Meeting in June. Let’s see if the CPI can move the needle in any way.

Economic Calendar Highlights

The U.S. Producer Price Index will be released Tuesday at 12:30 pm GMT, showing changes in the price that producers charge for their finished goods and services. It has inflationary implications because a higher price charged by the producer will be ultimately transferred to the client.

Also Tuesday, Fed Chair Powell will speak at the Netherlands’ Foreign Bankers’ Association, in Amsterdam. The event is scheduled at 2:00 pm GMT and audience questions are expected.

Wednesday will be the busiest day of the week, with three major releases: the U.S. Core CPI, the Core Retail Sales, and the Empire State Manufacturing Index. The CPI is the main gauge of inflation and has a huge impact on the Fed’s rate decision, while Retail Sales represent the main part of overall economic activity. The Manufacturing Index is a leading indicator of economic health in New York State. All three indicators will be released at 12:30 pm GMT.

Friday at 9:00 am GMT we take a look at European inflation with the Final version of the CPI. Although it can have an impact on the Euro, this version is less important than the Flash version which was released about two weeks ago.

Technical Outlook – EUR/USD

The pair is currently trading at 1.0770 and has reached a major resistance zone. There are three elements that create a confluence zone: the bearish trend line drawn from the peak reached in December 2023, the 50-day Moving Average, and the horizontal resistance at 1.0775.

These three forms of resistance will be very tough to break by the Euro bulls even under normal circumstances. But as we can see from the chart below, the pair has already shown signs of weakness. The 50-day MA already pushed the price lower last Friday and that price action was followed by two daily candles with long wicks in their upper side.

All these signs point towards a move down during this week but the economic data will have a big impact on the pair’s movement.