EUR/USD analysis: Hot US inflation and rising oil prices support dollar

EUR/USD analysis: Stronger-than-expected US PPI sends dollar and yields higher
Crude oil rallies 2% to further fuel inflation concerns
But US retail sales point to a struggling consumer which could limit dollar’s gains

After ignoring CPI data earlier in the week, the US dollar found the latest inflation data too hot to ignore this time. The greenback rallied across the board, causing gold to fall as PPI inflation came in higher than expected, while the breakout in crude oil prices further exacerbated concerns over inflation remaining high for longer. But with key central bank meetings to come next week and given how the dollar has behaved in recent past, i.e., struggling to hold onto its data-driven gains, are we going to see the greenback ease back down again? It is worth noting that retail sales missed expectations, and this may well keep the dollar’s gains in check.

EUR/USD analysis: PPI comes in hot

Earlier in the day, we saw the hottest annual PPI since September, while the core producer price ex transport remained above 5% for the third month, which is not exactly screaming rate cuts. As a result, the dollar and bond yields rose, which kept the EUR/USD under pressure along with other FX majors and gold.

US PPI +0.6% m/m vs. +0.3% expected and last
US PPI +1.6% y/y vs. +1.1% expected and +0.9% last

Meanwhile, today’s jobs market data – unemployment claims – beat expectations, adding to the strong NFP print on Friday. Initial Claims came in at 209K, better than 218K expected, and slightly weaker than last week’s 210K print. Continuing claims also came in better.

US retail sales disappoint

Today’s other important macro data, retail sales, missed across the board, while downward revision to the prior month means the large miss we saw in January was even worse…

Retail sales +0.6% vs. +0.8% expected; previous month -0.8% from -0.6% reported initially
Core retail sales +0.3% vs. 0.5% expected
Retail sales control group 0.0% vs. +0.4% expected

So, for a second month, both headline and core retail sales data have disappointed expectations, and this is something that might prevent the US dollar from recovering more significantly moving forward. With inflation remaining high, and retail sales falling, this suggests consumers are feeling the squeeze. Lately, we have seen a few other macro pointers also pointing to a slowdown in economic activity. If further evidence emerges of a struggling consumer, then we could see the dollar weaken as the odds of a June rate cut increases. However, inflation data will need to weaken and fast.

EUR/USD technical analysis

Source: TradingView.com

At the time of writing, the EUR/USD was testing its session lows around 1.0885. This level marks the top of a key support range between 1.0850ish to 1.0885, as highlighted on my chart. Previously, this are had served as resistance. We have a short-term bullish trend line converging here too.

Therefore, there is the potential for the EUR/USD to rebound from around this area. But given that the drop is driven by macro factors, i.e., rising yields amid strong inflation data, then the bulls must wait for a confirmed reversal candle before looking for bullish setups again.

Indeed, if we get a decisive break below the 1.0850 to 1.0885 area then in that case, the bears might step in more aggressive for then they will have had some confirmation to work with i.e., a broken trend line.

All told, today’s drop in the EUR/USD is not completely a trend-changing move. The bears had what they were after, and now the onus is on the bulls to show up again and defend their ground.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Please ensure you fully understand the risks involved by reading our full risk warning.

FOREX.com is a trading name of StoneX Europe Limited, and FOREX.com/ie is a domain operated by StoneX Europe Ltd, a member of StoneX Group Inc. StoneX Europe Ltd, is a Cyprus Investment Firm (CIF) company registered to the Department of Registrar of Companies and Official Receiver with a Registration Number HE409708, and authorized and regulated by the Cyprus Securities & Exchange Commission (CySEC) under license number 400/21. StoneX Europe is a Member of the Investor Compensation Fund (ICF) and has its registered address at Nikokreontos 2, 5th Floor, 1066 Nicosia, Cyprus.

StoneX Europe Limited is registered with the German Federal Financial Supervisory Authority (BaFin). BaFin registration ID: 10160255

FOREX.com is a trademark of StoneX Europe Ltd, a member of StoneX Group Inc.

The statistical data and the awards received refer to the Global FOREX.com brand.

This website uses cookies to provide you with the very best experience and to know you better. By visiting our website with your browser set to allow cookies, you consent to our use of cookies as described in our Privacy Policy.

Through passporting, StoneX Europe is allowed to provide its services and products on a cross-border basis to the following European Economic Area ("EEA") states: Austria, Bulgaria, Croatia, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden.

Additionally, StoneX Europe Ltd is allowed to provide Investment and Ancillary Services to the following non-EU jurisdiction: Switzerland.

StoneX Europe Ltd products, services and information are not intended for residents other than the ones stated above.

Tied Agent Information: KQ Markets Europe Ltd with Company No. HE427857.
Address: Athalassas 62, Mezzanine, Strovolos, Nicosia Cyprus.
Services Provided: Reception and Transmission of Orders.
Commencement Date: 06/12/2022
Website: KQ Markets - CFD Trading | KQ Markets

We may pay inducements, such as commissions or fees, to affiliates or third-party introducers for referring clients to us. This is in line with regulatory guidelines and fully disclosed where applicable.

StoneX Europe Ltd may make third party material available on this website which may contain information included but not limited to the conditions of financial markets. The material is for information purposes only and does not contain, and should not be construed as containing, investment advice and/or investment recommendation and/or an investment research and/or an offer of or solicitation for any transactions in financial instruments; any decision to enter into a specific transaction shall be made by the client following an assessment by him/her of their situation. StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.