EUR/USD corrects below 1.0900 on outperformance from US Retail Sales data

EUR/USD corrects from more than the three-month high of 1.0920 in Tuesday's American session. The upside move in the shared currency pair appears to have stalled for the time being as the US Dollar (USD) gains ground. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, bounces back strongly to near 104.50.

The US Dollar rebounds as the US Retail Sales Control Group grew strongly by 0.9% from May's reading of 0.4%. Retail Sales Control Group is a key measure of the consumer spending component of Gross Domestic Product (GBP) that excludes receipts from auto dealers, building-materials retailers, gas stations, office supply stores, mobile home dealers, and tobacco stores. This has improved the economic outlook.

Meanwhile, overall sales at retail stores remained unchanged in June, as expected, month over month. In May, the economic data rose by 0.3%, upwardly revised from 0.1%. Retail Sales data is a key gauge of consumer spending that drives consumer inflation. A flat performance is incapable of fueling inflationary pressures. 

Fears of price pressures remaining stubborn have waned. On Monday, Federal Reserve (Fed) Chair Jerome Powell acknowledged that the inflation data in the second quarter has added to confidence that inflation will return sustainably to the bank’s target of 2% in his speech at the Economic Club of Washington. However, Powell cited the need for more good data to gain greater confidence before cutting interest rates.

According to the CME FedWatch tool, 30-day Federal Fund futures pricing data shows that the central bank will cut interest rates twice this year and will start reducing them from the September meeting.

Recent Consumer Price Index (CPI) data for June showed that headline and core inflation decelerated at a faster pace than expected on a monthly and annual basis. The monthly headline CPI deflated for the first time in more than four years. 

Daily digest market movers: EUR/USD declines as US Dollar bounces back

• EUR/USD declines below the round-level support of 1.0900 as the upside move stalls amid uncertainty ahead of Thursday's European Central Bank (ECB) monetary policy meeting. The major currency pair is broadly firm as investors expect the ECB will not deliver subsequent rate cuts. 
• The ECB is expected to leave its key rates unchanged as policymakers worry that an aggressive policy-easing approach could uplift price pressures again. In the last monetary policy meeting, the ECB forecasted the price pressures to remain at their current levels for the entire year. As the ECB is expected to keep interest rates at their current levels, investors will focus on cues about when the central bank will cut interest rates again. Currently, financial markets expect that the ECB will cut interest rates two times more this year. The ECB is expected to deliver rate
• cuts in the September and December meetings. 
• On the economic data front, a sharp decline in the German ZEW Survey – Economic Sentiment for July has raised concerns over the economic outlook. The sentiment data, a key measure of the sentiment of institutional investors towards economic growth, falls at a faster pace to 41.8 from the estimates of 42.5 and the former release of 47.5. On the contrary, the other component, known as the Current Situation, surprisingly improves to -68.9. Economists expected the sentiment data to have worsened further to -74.3 and the prior release of -73.8

Technical Analysis: EUR/USD struggles to sustain symmetrical triangle breakout

EUR/USD tests the breakout region of the Symmetrical Triangle formation on a daily timeframe near 1.0880. A breakout of the above-mentioned chart pattern results in wider ticks and heavy volume. The near-term outlook of the major currency pair is bullish as the 20-day Exponential Moving Average (EMA) near 1.0816 is sloping higher. 

The 14-day Relative Strength Index (RSI) shifts into the bullish range of 60.00-80.00, suggesting a strong upside momentum.