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Jignesh Davda

With US Inflation Out of the Way, Traders Look to Retail Sales

Yesterday’s CPI data failed to provide the catalyst for a EUR/USD rally above its 200 weekly moving average, an indicator the pair was hovering below ahead of the release.

Thursday’s docket is quite light data-wise, and so trader’s will be looking to US retail sales scheduled for release on Friday.

Final CPI figures out of Germany today were reported to rise by 0.2% which was in line with expectations. In Italy, the unemployment rate printed at 10.4% in the first quarter of the year, also matching expectations. Neither release had a significant impact on the exchange rate.


Technical Analysis

The big upside hurdle this week was, and will continue to be, the 200-period weekly moving average. The pair has mostly been trading around the indicator for about a year or so, but it has been relevant.

The pair initially tested it in August last year. After mostly just hovering above it for several months, it finally broke down in March. So far, rallies towards it have been met by sellers. In this context, I see this as a significant overhead hurdle.

EURUSD Hourly Chart

On an hourly chart, there appears to be a bear flag in play. EUR/USD broke below it shortly after yesterday’s inflation data. Measured move targets for the pattern fall at 1.1260.

However, I see support at 1.1280 as quite significant. It not only reflects a horizontal level, but the 100-hour moving average is seen converging towards it.

EURUSD 4-Hour Chart

The 4-hour chart shows further importance to 1.1280 as a rising trendline drawn from the late May low comes in around the same level.

Bottom Line

  • Considering the low moment decline, I think the downturn will be short-lived. Levels I consider important are 1.1280 and 1.1260.
  • There is a flag pattern in play, but considering the confluence of support nearby, there is potential that it might not reach its measured move target.
  • I consider overhead resistance from the 200 WMA, currently at 1.1345, as a major hurdle over the near-term.
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