EUR/USD Forecast: Inflation speculation leads the way

Valeria Bednarik FXStreet

EUR/USD Current Price: 1.2150

US Retail Sales showed no growth in April, while consumer sentiment contracted in May.
Stocks recovered, and government bond yields eased amid cooling tightening expectations.
EUR/USD has recovered its bullish potential but needs to break above 1.2181.

The EUR/USD pair advanced on Friday, as dismal US data cooled tightening expectations and put the greenback under selling pressure. The pair trimmed most of its weekly losses to finish it pretty much unchanged around 1.2050. US Retail Sales showed no growth in April, down from 10.7% in the previous month, while the core reading fell 1.5%. Also, the preliminary estimate of the Michigan Consumer Sentiment Index resulted in 82.8 in May, down from the previous 88.3 and the expected 90.4. Also, Industrial Production rose a modest 0.7% in April.

The softer-than-anticipated figures helped equities bounce amid hopes from continued easy money coming from the Federal Reserve. On the other hand, government bond yields retreated from the highs reached after the release of higher-than-expected US inflation.

The week will start in slow motion in the data front, as the EU won’t publish macroeconomic data, while the US calendar includes the May NY Empire State Manufacturing Index and a speech from Fed’s vice-chair Clarida.

EUR/USD short-term technical outlook

The daily chart for the EUR/USD pair indicates that further gains are likely, mainly if the pair breaks above 1.2181, May’s monthly high. Technical indicators bounced within positive levels while the pair met buyers around a bullish 20 SMA, which keeps heading north above the longer ones. In the 4-hour chart, the pair settled above its moving averages, while technical indicators recovered positive ground, although the bullish momentum is limited. Nevertheless, the risk is also skewed to the upside. The daily 20 SMA stands around 1.2070, and bulls will likely retain control as long as the level holds.

Support levels: 1.2110 1.2070 1.2025

Resistance levels: 1.2180 1.2240 1.2290

View Live Chart for the EUR/USD

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Author

Valeria Bednarik

FXStreet

Valeria Bednarik was born and lives in Buenos Aires, Argentina. Her passion for math and numbers pushed her into studying economics in her younger years.

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