Euro eyes US retail sales

The euro continues to trade close to the parity line, after breaking below this symbolic level during the week. It marked the first time that EUR/USD fell below parity since 2002. On Thursday, EUR/USD dropped to a low of 0.9952, as the US dollar showed some broad strength. However, the euro has managed to claw its way back above the parity line.

There are no tier-1 events in the eurozone today, which means the market’s attention will be directed to the US, with the release of retail sales and UoM consumer sentiment.

Will US retail sales rebound?

Retail sales is expected to bounce back after a disappointing reading of -0.3% in June. The consensus for June stands at 0.8%, but some economists are forecasting another decline due to surging inflation, which the Fed hasn’t succeeded in lowering. Another decline would reinforce fears of a recession, which could reduce the likelihood of the Fed delivering a massive 1.00% hike. According to the CME’s Fed Watch, the likelihood of a 1.00% hike has jumped to 50/50, with inflation rising to 9.1%, meaning it’s a tossup between a hike of 0.75% or 1.00%. If retail sales is stronger than expected, the Fed will have a clearer path to a 1.00% move, which would be good news for the US dollar.

US consumer confidence has eroded badly in recent months as inflation continues to accelerate and the cost of living crisis gets worse. The UoM consumer sentiment index is expected to drop to 49.9 in July. This would be a small move from the 50.0 reading in June but would be nonetheless significant, as the index hasn’t contracted for over a decade. Weak consumer confidence can quickly translate into decreased consumer spending, a key driver of economic growth. With growing fears that the US economy is close to a recession, the last thing needed is for consumers to cut back on spending.

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EUR/USD Technical

• EUR/USD is testing support at 1.0018. Below, there is support at 0.9889
•  There is resistance at 1.0124 and 1.0242

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