EUR/USD posts fresh monthly high on soft US Inflation and weak Retail Sales data

EUR/USD refreshes monthly high near 1.0870 in Wednesday’s New York session. The major currency pair strengthens as the United States Consumer Price Index (CPI) eases in line with estimates (CPI) and the monthly Retail Sales remain stagnant for April.

An expected decline in price pressures in the US economy, along with weak Retail Sales data, is an unfavorable situation for the US Dollar and bond yields. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, tumbles to more than a month low around 104.50. 

10-year US Treasury yields have also plunged to 4.36% as weak data is expected to boost expectations for the Federal Reserve (Fed) to begin reducing interest rates from the September meeting. This will also improve the confidence of Fed policymakers, who were concerned that the progress in the disinflation process has stalled as the previous three reports were hotter than expected.

Daily digest market movers: EUR/USD capitalizes on weak US Dollar

• EUR/USD advances to 1.0870 as the market sentiment turns extremely bullish due to a decline in the US consumer inflation and stagnant Retail Sales. S&P 500 futures have posted stellar gains in the early American session, exhibiting a sharp improvement in investors' risk appetite.
• Annual headline CPI softened as expected to 3.4% from 3.5% in March. In the same period, the core inflation, which strips off volatile food and energy prices, grew in line with estimates of 3.6% but decelerated from the prior reading of 3.8%. Monthly headline CPI rose at a slower pace of 0.3% from the consensus and the prior reading of 0.4% and the core CPI meets estimates of 0.3% but declines from the prior reading of 0.4%. The US CPI report showed that the decline in the inflation data came from lower prices of utility gas services and used cars and trucks. Rentals, transportation and medical services price index continue to gain.
• The US Retail Sales, which is a leading indicator of consumer spending and provides cues about the inflation outlook, remained stagnant in April. Investors forecasted a slower growth of 0.4% in sales at retail stores from the prior reading of 0.7%
• Meanwhile, the Euro remains upbeat as investors hope that higher interest rates for longer by the Fed will slow down the pace at which the European Central Bank (ECB) was anticipated to return to policy normalization. 
• On Tuesday, ECB policymaker and Banque Nationale de Belgique Governor Pierre Wunsch commented that the first two 25 basis points (bps) reductions in key ECB rates are close to a "no-brainer" but added that high rates for longer by the US Federal Reserve could lead to a slower pace of rate cuts. 
• Historically, investors underpin the US Dollar against the Euro if the policy divergence between the Fed and the ECB widens. A weak Euro brings significant business to Eurozone merchants from overseas markets. This could strengthen the economic outlook and result in higher employment and wage growth, which eventually will flare up price pressures again.
• On the economic data front, Eurostat has released a second estimate of preliminary Q1 Gross Domestic Product (GDP) data. The GDP report indicated that quarterly and annualized GDP growth were in line with the consensus and the preliminary reading at 0.3% and 0.4%, respectively. While EUR/USD didn't react to the second estimate as investors' focus remains on the US CPI data.

Technical Analysis: EUR/USD prints fresh monthly high near 1.0870

EUR/USD rises above the round-level resistance of 1.0800. The asset has advanced to the downward-sloping border of the Symmetrical Triangle pattern formed on a daily timeframe, which is plotted from December 28 high around 1.1140. The upward-sloping border of the triangle pattern is marked from October 3 low at 1.0448. The Symmetrical Triangle formation exhibits a sharp volatility contraction.

The major currency pair is at a make-or-break near 1.0870. A breakout of the Symmetrical Triangle formation could put the Euro bulls in the driving seat for a longer period. On the contrary, sharp selling pressure could drag them toward the upward-sloping border.

The 14-period Relative Strength Index (RSI) rises to 60.00. A bullish momentum would trigger if the RSI sustains above these levels.