• EURUSD seems less confident above 1.0000 as investors expected higher US Retail Sales.
• A subdued US Michigan CSI data may put some pressure on the DXY.
• Testing waters approach by the ECB may widen Fed-ECB policy divergence.

EURUSD price is displaying topsy-turvy moves in the Asian session. The pair has auctioned in a narrow range of 1.0011-1.0041 as investors are awaiting the release of the US Retail Sales and Michigan Consumer Sentiment Index (CSI). On Thursday, the asset rebounded strongly after surrendering the magical figure of 1.0000. The parity of the shared currency and the greenback is expected to keep the bears active.

The US dollar index (DXY) is attempting a rebound after a steep fall on Thursday. The DXY tumbled after printing a fresh 19-year high of 109.26 as profit-booking kicked in. It is worth noting that the asset is continuously refreshing its highs, which displays the strength of the DXY bulls on a broader basis. The DXY is expected to turn its corrective phase into a bullish impulsive wave after violating the round-level resistance of 109.00.

Also Read: EURUSD Forecast: Is today the day buyers give up on parity?

ECB should not delay the rate hike this time

Higher CPI and PPI advocate a 1% rate hike by the Fed

The release of the improved Consumer Price Index (CPI) and Producer Price Index (PPI) report this week has bolstered the odds of a 1% rate hike by the Federal Reserve (Fed) in its upcoming monetary policy meeting later this month. The plain-vanilla CPI landed at 9.1% much higher than the estimates of 8.8% and the prior release of 8.6%.  Also, the PPI data that excludes oil and food prices have landed at 8.2%, minutely higher than the estimates of 8.1% but remained lower than the prior release of 8.5%. This will put more pressure on the shared currency bulls.

Full percent rate hike soars recession fears

There is no denying the fact that persistent price pressures and advancing interest rates were already strengthening the chances of recession. Now, the latest inflation figures have soared further as a full percent rate hike by the Fed will squeeze liquidity from the economy extensively.  

Fed policymakers are delivering hawkish commentary to the fullest as the upbeat employment data and sold demand forecasts have empowered them to sound hawkish unhesitatingly. Quick expansion in the interest rates will scale down the investments, which will impact the banking sector and construction activities significantly. And eventually, will accelerate the jobless rates along with trimming the Nonfarm Payrolls (NFP). The occurrence of the same will pause the Fed from aggressive policy tightening and may weaken the greenback.

Higher energy bills to drive US Retail Sales

In today’s session, the release of the US Retail Sales will guide investors for a further direction. A preliminary estimate for the economic data is 0.8% for June, higher than the prior release of -0.3%. This may infuse fresh blood into the DXY. Fuel prices have shifted into bearish territory now but remained extremely solid in June. Therefore, higher energy bills must have been responsible for the higher consensus for the economic data. Also, the improved Consumer Price Index (CPI) report released on Wednesday is sufficient to support higher forecasts for Retail Sales.

Michigan CSI to remain subdued

As per the market consensus, the Michigan CSI is expected to remain subdued. The economic data is seen at 49.9, minutely lower than the prior release of 50. Investors should note that the prior release of 50 was the lowest in the past 15 years. The catalyst indicates the confidence of the consumers in the financial prospects of the country. A slippage in the economic data dictates a drop in the buying conditions for real estate and durable goods in the economy. No doubt, the persistent price rise has trimmed the demand for durable goods and higher interest rates are becoming a nightmare for home buyers.

Divergence to get wider in ECB-Fed policy

The Harmonized Index of Consumer Prices (HICP) numbers have remained majorly stable in the eurozone. However, this doesn’t warrant no rate hike announcement by the European Central Bank (ECB). The ECB has not elevated its interest rates yet like the other Western central banks, which have hiked their rates at a quicker pace. The rate hike announcement by the ECB is highly expected, however, ECB President Christine Lagarde may prefer to test the waters first and will announce higher rate hikes in later stages. While the Fed is seen to hike its rates by 1%. This may widen the policy divergence between ECB and Fed further.

EURUSD technical analysis

On an hourly scale, EURUSD price is displaying strong buying tails near Thursday’s low of 0.9953 which signals the presence of marquee investors. The shared currency bulls have driven the asset above the psychological support of 1.0000.

The 20- and 50-period Exponential moving Averages (EMAs) at 1.0025 and 1.0032 have turned sideways, which indicates a short-term consolidation ahead.

Also, the Relative Strength Index (RSI) (14) is oscillating in the 40.00-60.00 range, which indicates that investors are awaiting a potential trigger for a decisive move.

EURUSD hourly chart

Elliott Wave trading strategies: DAX 40, FTSE 100, STOXX 50, Dollar Index, EUR/USD