U.S. Inflation Cools but Fear Still Rules. Fed Next
EUR/USD to Take a Breather. Deeper Correction Underway?
The CPI data that came out last week showed that the Fed is on the right track to reach the 2.0% inflation target but there is still a long way to go. The Headline CPI showed a 0.2% change from the previous 0.5% and the anticipated 0.3%, while the Core version posted 0.2%, lower than the previous 0.4%. This brought the yearly numbers down to 2.8% from 3.0%.
Despite the cooling inflation, the fear regarding a possible recession and the trade war sparked by the new tariffs is still at an all-time high. This was evidenced by the Consumer Sentiment survey that came out Friday with a drop from 64.7 to 57.9.
The Fed will meet this week to announce the rate but unless major surprises happen, there will be no cuts. According to the CME FedWatch tool, the first rate cut will come in June, with a 57.7% probability of a 25-bps trim. There is also a probability of 19.0% for a cut of 50 bps, while 22.9% is reserved for a no-cut scenario.
Economic Calendar Highlights
The first event of the week will be the release of the U.S. Retail Sales, scheduled for Monday at 12:30 pm GMT. There’s a big jump anticipated, from the previous -0.9% to 0.6% for the headline figure and from -0.4% to 0.3% for the Core version. Sales made at retail levels represent the majority of overall economic activity, thus the release usually has a hefty impact on currency markets.
The Federal Funds Rate will be announced Wednesday at 6:00 pm GMT, alongside the FOMC Economic Projections, and will be followed half an hour later by Fed Chair Powell’s press conference. The rate is not expected to change so the release is already priced into the market; however, Chair Powell’s press conference is almost always a volatility catalyst, especially if he drops any hints about future monetary policy.
Thursday at 12:00 pm GMT it’s the Bank of England’s turn to announce the interest rate. Similar to the U.S., the rate is not likely to change. BoE Governor Bailey will hold a press conference at 12:30 pm GMT.
Technical Outlook – EUR/USD
The bulls managed to take the price above the resistance at 1.0900 but the break was short-lived and the pair is currently trading below this resistance level. During Friday’s trading session, the pair made another attempt to break 1.0900 but was rejected, which shows that at least for now, it is in correction mode and a deeper pullback is next.
The RSI was deep into overbought territory and now it appears to return inside the range, which supports the scenario of a deeper retracement. The first level that can provide support is located at 1.0775, while resistance still sits at 1.0900.
