- EUR/USD has extended its impressive rally early Friday.
- Dollar stays fragile ahead of high-tier data releases.
- EUR/USD remains on track to post its largest one-week gains since May.
EUR/USD has preserved its bullish momentum and extended its rally toward 1.1500 early Friday. The heavy selling pressure surrounding the greenback continues to fuel the pair's upside as investors await high-tier data releases from the US.
The dollar stayed relatively resilient against its rivals during the first half of the day on Thursday but the Producer Price Index (PPI) data caused US Treasury bond yields to push lower and forced the US Dollar Index to edge lower. Annual PPI ticked down to 9.7% in December from 9.8% in November and the benchmark 10-year US T-bond yield lost nearly 2%.
Meanwhile, Fed Governor Christopher Waller noted that the balance sheet reduction could start in summer but this comment was largely ignored by market participants.
Later in the day, December Retail Sales and Industrial Production data from the US will be looked upon for fresh impetus. Additionally, the University of Michigan will release the preliminary Consumer Sentiment Index for January.
Retail Sales in the US is expected to remain unchanged in December and a better-than-expected reading could lend some support to the greenback ahead of the weekend. Nonetheless, the market reaction to this report, which is unlikely to have a meaningful impact on the market pricing of the Fed's policy outlook, is likely to remain short-lived. The CME Group FedWatch Tool shows that the probability of a March rate hike currently stands at 83.% but investors reassess how aggressive the Fed can tighten its policy if price pressures ease in the second half of the year.
The shared currency could continue to outperform the dollar in the near term but it's still too early to say whether or not EUR/USD is at the beginning of an uptrend.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the four-hour chart declined to 70 early Friday, suggesting that the pair is in a technical correction stage. On the downside, 1,1440 (static level) aligns as the first support before the 1.1410/1.1400 area (20-period SMA, psychological level).
Interim resistance seems to have formed at 1.1480 before 1.1500 (psychological level). In case a four-hour candle closes above the latter, 1.1530 (static level) could be tested.
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