EUR/USD's Sideways Move Amidst Eurozone Inflationary Pressures

The EUR/USD pair has embarked on a rollercoaster ride, exhibiting a volatile squeeze above the significant resistance level of 1.1200. As attention shifts towards the upcoming release of US Retail Sales data, the pair has turned sideways, with investors eagerly anticipating a fresh trigger for further guidance.

Caution has seeped into the market, reflected in losses witnessed in S&P500 futures during the Tokyo session. With the second-quarter result season now in full swing, market participants remain cautious about potential volatility in corporate earnings. The aggressive policy tightening by the Federal Reserve (Fed) and tightened credit conditions imposed by commercial banks to maintain asset quality have further intensified concerns, placing some pressure on US equities.

Meanwhile, the US Dollar Index (DXY) has experienced a squeeze in volatility, finding stability just below the psychological level of 100.00. Traders anticipate significant action in the USD Index following the release of US Retail Sales data. Market consensus suggests a higher expected monthly retail demand expansion of 0.5%, surpassing the previous release of 0.3%. Excluding automobile sales, retail demand is projected to grow by 0.3% compared to the previous release of 0.1%.

In contrast, the Euro continues to display remarkable strength, fueled by expectations of the European Central Bank (ECB) extending its rate-hiking spell beyond July. Inflationary pressures within the Eurozone contribute to the Euro's resilience, with headline inflation soaring to 5.5% and core inflation, excluding volatile oil and food prices, reaching 5.4%. These figures significantly surpass the desired rate of 2%.

While economists at Nordea suggest that another rate hike in July appears inevitable, they also believe it will mark the conclusion of the current tightening cycle. The ECB's commitment to seeing more tightening warranted acknowledges the prevailing strength of the Euro but hints at a more cautious approach in the near future.

As the EUR/USD pair continues its choppy journey above the 1.1200 resistance level, investors eagerly await the release of US Retail Sales data for further guidance. Market caution prevails, influenced by the ongoing result season and concerns over Fed policies. The Euro's unwavering strength, driven by inflationary factors, sets the stage for an interesting interplay between the two major currencies in the days to come.


Pivot Point: 1.12050

Our preferred Scenario

Long positions above 1.12050 with targets at 1.1260 & 1.1280 in extension.