EUR/USD rises as Greenback suffers due to soft US PPI, Retail Sales data

• EUR/USD edges up to near 1.1200 as the US Dollar softens due to a substantial correction in US Treasury yields.
• US consumer and producer inflation, and Retail Sales remained soft in April.
• ECB’s Kazaks argued in favor of further interest rate cuts.

EUR/USD ticks up to near 1.1200 during European trading hours on Friday. The major currency pair trades higher as the US Dollar (USD) faces selling pressure, tracking a sharp decline in US bond yields, after the release of the soft United States (US) Producer Price Index (PPI) and Retail Sales data on Thursday. 

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, edges down to near 100.70. Meanwhile, 10-year US Treasury yields are down over 3% to near 4.40% from their monthly high of 4.55% posted on Thursday.

The economic data showed on Thursday that the producer inflation, as measured by the PPI,  declined unexpectedly in April, and Retail Sales barely grew. The notable decline of 0.7% in services prices led to deflation in the PPI, while the growth in goods prices remained flat. Meanwhile, Retail Sales rose at a moderate pace of 0.1%, compared to a robust growth of 1.5% in March. The data showed that demand for automobiles declined as households postponed their demand in the wake of a hike in selling prices by car dealers to offset the impact of tariffs imposed by US President Donald Trump on foreign cars in March.

This week, the US Consumer Price Index (CPI) data for April also grew at a slower-than-expected pace. Theoretically, soft US consumer and producer inflation boosts expectations of interest rate cuts by the Federal Reserve (Fed). However, traders have not raised dovish bets as consumer inflation expectations remain higher due to the fallout of new economic policies by US President Donald Trump. 

According to the CME FedWatch tool, the probability for the Fed to leave rates steady in the range of 4.25%-4.50% in the June and July meetings is 91.8% and 61.4%, respectively.

While Washington and Beijing have agreed to lower tariffs by 115% for 90 days and are aiming for a series of negotiations to avoid any escalation in the trade war, Fed officials believe that the current rate of tariffs is still high enough to prompt inflation.  

Earlier this week, Chicago Fed Bank President Austan Goolsbee said, “Tariffs are still three to five times higher than what they were before, so it is going to have a stagflationary impulse on the economy. It’s going to make growth slower and make prices rise.”

Daily digest market movers: EUR/USD gains while Euro remains broadly steady

• EUR/USD moves higher at the expense of the US Dollar. The Euro (EUR) is broadly steady against its peers on Friday, while traders remain increasingly confident that the European Central Bank (ECB) will reduce interest rates again in the monetary policy meeting next month.
• Factors contributing to solid ECB dovish bets are confidence that the Eurozone inflation is on track to return to the central bank’s target of 2% this year, and the economic outlook is grim due to global uncertainty.
• Several ECB officials have argued in favor of continuing interest rate reduction. During European trading hours, ECB Governing Council member Martins Kazaks guided a dovish monetary policy outlook by saying that there may still be a “couple” of reductions in the deposit rate this year from its current level of 2.25%, Bloomberg reported. However, Kazaks cautioned that policymakers shouldn’t hurry and adopt a “meeting by meeting” approach amid the unclear global trade situation.
• On the economic front, Eurozone Q1 Gross Domestic Product (GDP) data has been revised lower, while Employment Change has held up. The data showed on Thursday that the Eurozone economy grew at a slower pace of 0.3%, compared to the preliminary estimate and the prior release of 0.4%. Year-on-year, the GDP growth remained 1.2%, as expected. Meanwhile, the Employment Change in the January-March period has come in higher at 0.3% quarter-on-quarter, compared to flash estimates and the former reading of 0.1%. 

Technical Analysis: EUR/USD rises to near 1.1200

EUR/USD rises to near 1.1200 on Friday. However, the near-term outlook of the pair is still uncertain as the 20-day Exponential Moving Average (EMA) is acting as a key barrier around 1.1210.

The 14-period Relative Strength Index (RSI) recovers strongly to 50.00 after sliding to near 40.00, suggesting indecisiveness among traders.

Looking up, the April 28 high of 1.1425 will be the major resistance for the pair. Conversely, the March 18 high of 1.0955 will be a key support for the Euro bulls.