EUR/USD Struggles as Fed Rate Hike Possibility Looms Despite Decreased Retail Demand
The EUR/USD is experiencing a 0.26% drop, trading at 1.0971, as it faces challenges in initiating a rebound due to the persistent likelihood
The EUR/USD is experiencing a 0.26% drop, trading at 1.0971, as it faces challenges in initiating a rebound due to the persistent likelihood of another interest rate increase by the Federal Reserve, even amid declining retail demand from households.
US Macroeconomic Data
March US retail sales figures, released on Friday, showed a more significant than expected 1.0% decrease, compared to predictions of a 0.4% decline and the previous 0.2% drop. High inflation and uncertain job situations contributed to consumers’ struggles, while vehicle demand remained weak. However, these numbers suggest strong Q1 consumer spending, with the retail sales control group’s three-month annualized growth rate currently at 9.5% and 5.7% on an annual basis.
The University of Michigan’s consumer survey also revealed that US consumer sentiment improved in April, beating market expectations, although inflation expectations increased. After a decline in March, the consumer sentiment index rose to 63.5 in April. The dollar rebounded from a one-year low as speculation about a May interest rate hike grew due to weak core US retail sales and increased short-term inflation forecasts.
Fed Rate Hike Expectations
Hawkish comments from Fed officials have heightened the possibility of further Fed policy tightening. Atlanta Fed President Raphael Bostic and Fed Governor Christopher Waller suggested the possibility of a 25 basis point rate increase next month, contributing to higher interest rate expectations. Waller stated that further rate hikes are needed, as inflation remains “far too high” and controlling it is still “not done.” Consequently, markets now assign an almost 81% probability of a 25 basis point interest rate hike by the Federal Reserve on May 3. The 10-year US Treasury yield was at 3.517%, and the US dollar index (DXY) increased by 0.23% to 101.82, putting pressure on the EUR/USD pair.
EUR/USD Technical Outlook
The EUR/USD pair concluded last Friday on a negative note, breaching the support line of the bullish channel shown on the chart and moving towards a bearish correction for the uptrend that originated from the 1.0517 area. The pair is initially targeting 1.0945, with a break below this level likely to drive the price down to 1.0860 directly.
As a result, a bearish bias is anticipated for today. However, it is crucial to note that surpassing 1.0990 and then 1.1032 levels would halt the ongoing negative pressure, allowing the price to resume its primary bullish trend. For today, the expected trading range is between 1.0900 support and 1.1050 resistance.
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