Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.0800.
- Add a stop-loss at 1.0950.
- Timeline: 1-2 days.
Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.0980.
- Add a stop-loss at 1.0800.
The EUR/USD went parabolic on Wednesday, continuing a bullish trend that started on April 14th. It soared to 1.0885 after the mixed US inflation and retail sales numbers. It has jumped by over 2.6% from its lowest point in April.
US inflation and retail sales data
The US dollar index sunk to its lowest level in more than a month after the mixed economic numbers pointed to a potential Fed interest rate cut later this year.
The most important report was on inflation, which showed that prices softened slightly in April. According to the BLS, the monthly inflation figure retreated for the first time in six months. It softened to 0.3% MoM from the previous month’s 0.4%, translating to a year-on-year increase of 3.4%.
Core inflation also retreated slightly, moving from 0.4% to 0.3%. It dropped from 3.8% in March to 3.6% in April, the lowest level since 2022. Therefore, while the annual figures are significantly higher than the 2% target, investors hope that the trend will continue.
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Further data confirmed the view that the economy was softening. Retail sales, a crucial indicator of consumer health, dropped from 0.6% in March to 0.0% in April. Core sales also fell from 0.4% to 0.3% during the month. Additionally, the New York Empire State manufacturing index fell from minus 14.30 to minus 15.60.
Other data released recently showed that consumer confidence dropped to its lowest level since 2022 while the unemployment rate rose to 3.9%. The economy grew by 1.6% in Q1, down from 3.4% in Q4.
Therefore, the implication is that the Federal Reserve will come under pressure to start its easing cycle in the coming months.
The key economic data to watch on Thursday will be the US building permits, housing starts, and industrial and manufacturing production. Also, several Fed officials like Loretta Mester, Raphael Bostic, and Patrick Harker will talk.
EUR/USD technical analysis
The EUR/USD exchange rate continued its strong bull run this week after the soft inflation numbers. It jumped and retested the crucial resistance point at 1.0885, its highest swing on April 9th. The pair has moved above the Supertrend indicator and the first resistance of the Woodie pivot point.
At the same time, the Relative Strength Index (RSI) and the Stochastic Oscillators have continued rising, signaling that there is strong momentum. Therefore, while the uptrend will likely continue, the pair will likely have a pullback as traders start to take profits. It could drop and retest the first resistance at 1.0800.
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