EUR/USD Daily Forecast – Choppy Price Action Continues Ahead of US Retail Sales Report

In my last two articles, I’ve discussed various reasons why EUR/USD may fall into a range from this point on after some wild swings in prior weeks on the back of the Coronavirus escalation. This continues to be my base case and the price action in the week thus far appears to be confirming it.

Sellers capped gains ahead of major resistance at 1.1000 during the Asian session and EUR/USD has turned to negative territory for the week on the sell off since then.

The rise in the inversely correlated dollar index (DXY) is a bit more pronounced as the index has wiped out yesterday’s loss. Today’s daily close will be important for that reason. A close near current levels, or higher, would offer a signal for a bullish reversal when looking at candlestick patterns.

However, the major currencies could see heightened volatility later in the day when the US retail sales report gets released. Analysts are looking for a large 8% drop in sales for March. To create some context, this report has typically fluctuated less than half a percent from one month to another over the last year or so.

How the market reacts will be somewhat unpredictable. The analyst estimate has already level set expectations for an extremely weak reading. Further, the markets have priced in the negative impact the Coronavirus is expected to have on the economy at this stage. A significant deviation from the estimate may be needed to trigger a rise in volatility.

Technical Analysis

The upward movement since April 4th appears to be taking the form of a flag pattern, which could trigger a near-term decline if the pair breaks below the lower bound of the rising channel. It currently falls near a horizontal level at 1.0900.

A break below 1.0900 opens up a test of support at 1.0788 with some support slightly ahead of the level at 1.0830.

While the pair stays above 1.0900, there is still potential for another leg higher to test resistance at 1.1000.

Bottom Line

• Today’s US retail sales report is expected to come in much weaker than usual, however, the reaction in the exchange rate might not be volatile unless there is a significant deviation from expectations.
• The daily close in the US dollar index (DXY) today stands to set the near-term tone for the dollar.