EUR/USD Forecast: Hopes for recovery? Not so fast, the US consumer holds the key

• EUR/USD has been on the back foot amid US dollar strength, digesting German GDP.
• US consumer data and Sino-American relations stand out later in the day.
• Friday's four-hour chart is pointing to further falls below the broken support line.

"Indicators in April do not show signals of hope" – the words of Germany's economic ministry put the relatively moderate drop in output in proportion. Europe's largest economy has reported a drop of 2.2% in Gross Domestic product, in line with expectations and better than the continent's average. The publication is helping keep EUR/USD above 1.08. 

Eurozone figures are due out shortly and are expected to slightly shift in response to Germany's figures. The initial read showed a drop of 3.8% in output. 

The focus then moves to the US shopper. Around 70% of the world's largest economy is centered on consumption, and the read for April – a full month of lockdown – will likely be devastating. After holding up in March, the core of the core Control Group is forecast to drop as well, while headline sales carry expectations for a double-digit fall. The publication is the most significant release of the week:

US Retail Sales April Preview: As bad as can be but still expected

US industrial production statistics for April are also projected to show a drop and economists also predict the preliminary Consumer Sentiment Index to edge lower. However, the University of Michigan's confidence measure may also surprise to the upside, amid reopenings in several states. 

See US Consumer Sentiment Preview: The triumph of hope over experience?

The dollar has stabilized in anticipation of these critical US figures and also amid opposing forces. The safe-haven greenback benefited from growing Sino-American tensions. President Donald Trump stated that the era of globalization is over and wants to bring supply chains home from China. Moreover, he refuses to speak to his Chinese counterpart Xi Jinping. Trump also advocated a stronger dollar, a shift from his previous stance, complaining about it.

On the other hand, Senate Republicans are open to another stimulus plan, potentially including another cheque to every American. The White House rejected House Democrats' $3 trillion plan, but do not outright object new expenditure.

Jerome Powell, Chairman of the Federal Reserve, called on elected officials to do more. Earlier in the week, he pushed the dollar higher by rejecting negative interest rates

More: Unprecedented gloom of Mr. Powell will have long-lasting effects

EUR/USD Technical Analysis

Euro/dollar has fallen off the uptrend channel and attempts to recapture it have failed. The currency pair also trades below the 50, 100, and 200 Simple Moving Averages, but momentum has stabilized. 

All in all, bears are in the lead but are far from having full control. 

Support awaits at 1.0780, which has been a low point several times in May, and more importantly by 1.0765, the monthly low. Further down, 1.0730 and 1.0640 await. 

Looking up, 1.0820 capped recovery attempts and the 50 SMA is approaching this price. The next line to watch is 1.0870, a swing high from last week, and then 1.0890, a stubborn cap in April. 1.0925 and 1.0970 are next.