EUR/USD to Target $1.07 on Euro Area Retail Sales and ECB Chatter

It is a relatively quiet start to the week for the EUR/USD. Euro Area retail sales figures for January will draw interest early in the European session. Consumption remains a material consideration for the ECB and the euro area economic outlook.

In the latest ECB Economic Bulletin, the ECB noted that rising wage growth and declining energy price inflation should ease the loss of purchasing power and support consumption. Consumer confidence would need to improve to support the ECB’s outlook on consumption.

Things have worked out for the ECB thus far. According to the prelim inflation figures for February, energy price inflation softened from 18.9% to 13.7%, with euro area consumer confidence improving marginally in February.

However, easing inflationary pressures and improving consumer confidence trends would need to translate into a pickup in consumer spending to support the ECB’s economic outlook. Weak numbers will likely test EUR/USD support and the ECB’s policy goals. Economists forecast euro area retail sales to increase by 1.8% in January.

After the ECB policy meeting minutes on Thursday, investors need to monitor ECB member speeches. ECB Chief Economist Philip Lane will draw interest later in the session.

EUR/USD Price Action

At the time of writing, the EUR/USD was up 0.11% to $1.06456. A mixed start to the day saw the EUR/USD fall to an early low of $1.06227 before rising to a high of $1.06500.

Technical Indicators

The EUR/USD needs to avoid the $1.0620 pivot to target the First Major Resistance Level (R1) at $1.0652. A move through the Friday high of $1.06386 would signal a bullish session. However, the EUR/USD would need the retail sales numbers and Philip Lane to support a breakout session.

In the case of an extended rally, the bulls will likely test the Second Major Resistance Level (R2) at $1.0671 and resistance at $1.07. The Third Major Resistance Level (R3) sits at $1.0721.

A fall through the pivot would bring the First Major Support Level (S1) at $1.0602 into play. However, barring a data-fueled sell-off, the EUR/USD pair should avoid sub-$1.0550. The Second Major Support Level (S2) at $1.0570 should limit the downside. The Third Major Support Level (S3) sits at $1.0519.

Looking at the EMAs and the 4-hourly chart, the EMAs send mixed signals. The EUR/USD sits below the 100-day EMA ($1.06549). The 50-day EMA narrowed to the 100-day EMA, while the 100-day EMA eased back from the 200-day EMA, delivering mixed signals.

A move through R1 ($1.0652) and the 100-day EMA ($1.06549) would give the bulls a run at R2 ($1.0671) and the 200-day EMA ($1.06804). However, a fall through the 50-day EMA ($1.06243) would bring S1 ($1.0602) and sub-$1.06 Support Levels into play. A slide through the 50-day EMA would send a bearish signal.

The US Session

Looking ahead to the US session, it is a quiet day on the US economic calendar. Factory orders for January will draw interest. While service sector activity remains robust, inflation sticky, and the labor market tight, manufacturing sector woes continue to test investor sentiment toward the US economy.

A sharper-than-forecasted fall in factory orders would support the slow and steady Fed rhetoric. Economists forecast factory orders to fall by 1.8%.

Beyond the stats, investors should also monitor Fed chatter ahead of Fed Chair Powell’s testimony on Tuesday. Hawkish commentary would test EUR/USD support.