Softer US Data Propels EURUSD Beyond Key Technical Level

Euro Analysis

• Markets price in the same amount of rate cuts for the ECB as they do in the US
• EUR/USD contemplating a reversal after surpassing the 200 SMA
• Risk events: US retail sales and central bank speakers
• The analysis in this article makes use of chart patterns and key support and resistance levels. For more information visit our comprehensive education library

European Futures Market on Pace with US Rate Cuts

Despite prominent ECB officials emphatically stating the conversation around rate cuts is premature, the futures market anticipates nearly 100 basis points of cuts in 2024 which paces alongside US expectations. Therefore, the euro no longer holds a notable advantage as far as interest rate expectations are concerned.

Implied rate hikes/cuts based off the futures market

Source: Refinitiv, prepared by Richard Snow

Nevertheless, EUR/USD has put in a strong performance after US inflation data fell encouragingly on Tuesday. The unwinding of US outperformance is forcing markets to reassess whether the world’s largest economy is showing signs of frailty like the rest of the major economies.

EUR/USD Contemplating a Reversal After Surpassing 200 SMA

A massive move higher of around 1.7% yesterday made a strong case for a bullish reversal, even surpassing the key 200-day simple moving average (SMA) in the process. The 200 SMA is widely followed as a longer-term trend filter as the pair is yet to even test the level, this time as support.

1.0831 is the most immediate level of support and should the pair hold above it, would bode well for further bullish momentum, particularly if US retail sales data continues the trend of weaker fundamental data.

EUR/USD Daily Chart

Source: TradingView, prepared by Richard Snow

Major Risk Events for the Week Ahead

US retail sales carries more importance in light of the recent trend of softening US data. Markets will be particularly concentrated on the health of the US consumer given the sizeable contribution it made to the massive Q3 GDP figure. Thereafter, the final number for EU core inflation is due but there is little to suggest this will vary much, if at all. Tomorrow there is a notable concentration of Fed speakers and it will be interesting to see if they pose any resistance to the more dovish sentiment moving through markets after the lower US inflation data.

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— Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX