EUR/USD grinds near one-year high near 1.1050, US Retail Sales, Michigan CSI eyed

• EUR/USD bulls take a breather after rising to the highest levels in one year.
• Downbeat US PPI bolstered hopes of Fed’s policy pivot and drowned US Dollar.
• Upbeat Eurozone Industrial Production also helps the Euro pair.
• Bulls are likely to keep the reins even if US consumer-centric data offers positive surprise.

EUR/USD rose to the highest level since March 2022 during a three-day winning streak to 1.1067, before bulls caught a breather around 1.1050, making rounds to the same amid early Friday morning in Asia. The Euro pair rallied heavily as the downbeat US inflation clues joined a technical breakout of the February month high.

That said, US Producer Price Index (PPI) for March dropped to a four-month low of -0.5% MoM versus 0.0% expected and prior whereas the PPI YoY also declined to 2.7% from 4.9% previous readouts, versus market forecasts of 3.0%. Further, US Initial Jobless Claims rose to 239K versus 232K expected and 228K prior.

On the other hand, Reuters cited five sources with direct knowledge of the discussion on Thursday to say that the European Central Bank (ECB) policymakers are converging on a 25 basis points (bps) interest rate hike in May. “Though the debate is not over, with one small group still making case for a 50 bps hike in May; another small group advocating no change,” added the news and cited indecision among the policymakers.

While confirming the same, indirectly, ECB Council member Bostjan Vasle said that they are considering 25 and 50 basis points (bps) rate hike options for the May policy meeting, per Reuters.

On the other hand, the odds of the Federal Reserve’s (Fed) policy pivot gained momentum as a consecutive easing in the inflation clues and unimpressive Fed Minutes allowed the hawks to retreat. Even so, the CME’s FedWatch Tool signals a 68% chance of a 0.25% rate hike in March versus 71% marked the previous day.

Amid these plays, Wall Street remained firmer and the yields also improved but the US Dollar Index (DXY) dropped to the lowest levels since February.

Moving on, a light calendar ahead of the North American trading session may restrict the EUR/USD moves at the multi-day high. However, the underlying bullish trend is likely to remain intact considering the divergence between the ECB and the Fed, as well as softer US inflation data.

That said, US Retail Sales for March, expected to repeat -0.4% MoM figure, precedes the preliminary readings of the US Michigan Consumer Sentiment Index (CSI), likely staying unchanged at 62, to entertain EUR/USD traders. Also important to watch will be the University of Michigan’s (UoM) 5-year Consumer Inflation Expectations, prior 2.9%.

Technical analysis

A daily closing beyond the February 2023 high of around 1.1035 enables EUR/USD bulls to aim for March 2022 peak surrounding 1.1185.