EUR/USD Forecast – Under Pressure after Rise in US Retail Sales Supports Need for More Fed Rate Hikes

The Euro is being pressured on Wednesday by a stronger dollar after the latest U.S. retail sales report blew away expectations, solidifying the call for at least two more 25-basis point rate hikes by the U.S. Federal Reserve. A stronger-than-expected Empire State Manufacturing Activity report also contributed to the dollar’s strength.

Both reports signal that the U.S. economy is holding up despite increased rate hikes by the Federal Reserve to tame inflation.

At 14:35 GMT, the EUR/USD is trading 1.0680, down 0.0056 or -0.52%. The Invesco CurrencyShares Euro Trust ETF (FXE) is at $98.57, down $0.51 or -0.52%.

In other news, industrial production in the United States was unchanged in January compared to the previous month, the Federal Reserve said in a release on Wednesday. The report also showed industrial production output grew 0.8% on a year basis.

Later in the session at 17:00 GMT, European Central Bank President Christine Lagarde speaks. Traders are hoping she sheds some light on monetary policy, but in the wake of yesterday’s U.S. CPI report, her comments may not be enough to shift the narrative away from the stronger dollar.

Daily EUR/USD Technical Analysis

The main trend is down according to the daily swing chart. A trade through 1.0656 will signal a resumption of the downtrend. A move through 1.1033 will change the main trend to up.

The minor trend is also down. A trade through 1.0804 will change the main trend to up, while shifting momentum to the upside.

The nearest support is a long-term 50% level at 1.0661. The closest resistance is a pair of 50% levels at 1.0730 and 1.0758.

Daily EUR/USD Technical Forecast

Trader reaction to the 50% level at 1.0661 is likely to determine the direction of the EUR/USD into the close on Wednesday.

Bearish Scenario

A sustained move under 1.0661 will indicate the presence of sellers. Taking out the minor bottom at 1.0656 could trigger an acceleration to the downside with 1.0483 the next major downside target.

Bullish Scenario

A sustained move over 1.0661 will signal the presence of counter-trend buyers. If this move generates enough upside momentum then look for a late session surge into the pair of 50% levels at 1.0730 and 1.0758.