EUR/USD and GBP/USD Price Forecast: Dollar Index Falters Despite Solid Retail Sales; Eyes on ECB

Highlights

• Euro gains against dollar after U.S. data, ECB President hints at summer rate cut.
• British Pound edges higher, boosted by solid UK inflation data amid dollar retreat.
• Dollar Index tests key Fibonacci level; technicals suggest further potential downside.

Dollar Weakens Despite Strong U.S. Retail Sales, ECB and Geopolitical Factors in Play

Despite strong Retail Sales in the U.S., the dollar weakened due to technical indicators suggesting it was overbought. This resulted in a correction, with the dollar reaching a 38.2% Fibonacci retracement level at 102.779.

Key U.S. economic data showed that Core Retail Sales and Retail Sales exceeded expectations, and Industrial Production saw modest growth. This dip in the USD led to gains for the Euro and British Pound; EUR/USD increased by 0.20% to 1.09040, and GBP/USD went up by 0.13% to 1.26982 on Wednesday.

European Central Bank President Christine Lagarde indicated a possible interest rate cut in the summer, dependent on economic data. Her comments led to adjusted market expectations for ECB rate reductions. In the UK, the Consumer Price Index rose to 4.0% year-over-year, signaling persistent inflation pressures, influencing the Bank of England’s upcoming policy decisions.

Furthermore, rising geopolitical tensions in the Middle East and China’s economic challenges are impacting the markets. China’s stock market reached a four-year low, following Premier Li Qiang’s cautious comments at Davos about economic stimulus. These global issues are influencing currency market trends.

Events Ahead

Attention is now shifting to forthcoming U.S. economic data, notably Unemployment Claims and the Philly Fed Manufacturing Index. Additionally, further insights are anticipated from ECB President Christine Lagarde’s remarks at the Davos Forum.

US Dollar Index (DXY)

The U.S. Dollar Index has retraced to the 38.2% Fibonacci level at approximately 102.779. A decisive break below this could set the stage for further declines towards the 50% and 61.8% Fibonacci support levels, located around 102.614 and 102.449, respectively. These levels are key to watch as they may offer potential support for a bullish recovery or confirm a bearish trend if breached.

EUR/USD Technical Forecast

On January 18, the EUR/USD pair saw a modest uptick of 0.22%, reaching 1.09030. The 4-hour chart indicates a pivot point at 1.09252, with key resistance levels at 1.09559, 1.10003, and 1.10383. Immediate supports are placed at 1.08452, 1.08006, and 1.07552.

The 50-day and 200-day Exponential Moving Averages are closely positioned at 1.09249 and 1.09159, respectively, suggesting a potential resistance zone. EUR/USD found strong support around the 1.0845 level, with the emergence of a hammer candle pattern indicating a possible bullish correction. This suggests a waning bearish trend with growing bullish momentum.

However, the pair breached an upward trend line around 1.0925, signaling a possible retest of this level. A failure to breach this level could lead to a continuation of the downward trend. Overall, the trend for EUR/USD remains bearish below the 1.09252 mark.

GBP/USD Technical Forecast

On January 18, the GBPUSD pair exhibited a slight increase of 0.16%, reaching 1.26971. The 4-hour chart analysis reveals a pivot point at 1.27119. The pair faces immediate resistance at 1.27403, with further resistance levels at 1.27829 and 1.28263. On the support side, 1.26662 acts as the immediate level, followed by 1.26392 and 1.25941.

Technical indicators show the 50-Day Exponential Moving Average (EMA) closely aligned with the current price at 1.26977, while the 200-Day EMA sits at 1.26499. These levels indicate potential areas of resistance and support respectively.

The overall trend for GBP/USD is leaning towards bearish below the pivot point of 1.27119. In the short term, the focus will be on whether the pair can test and surpass these resistance levels, which could potentially alter the current market trend.