US Dollar Forecast: Retail Sales and Inflation Data Shape Sentiment – Bond Yield and EUR/USD Outlook

Market Overview

The US Dollar strengthened following robust economic data. Core retail sales grew 0.4% in December, slightly below the 0.5% forecast, while the Philly Fed Manufacturing Index surged to 44.3, sharply exceeding the expected -5.2. However, rising unemployment claims at 217K signal some labor market concerns.

Bonds remain sensitive to upcoming industrial production data (0.3% forecast) and building permits, set to influence yields. The dollar’s momentum aligns with heightened demand for long-term securities, evidenced by $159.9B in TIC purchases, up from $152.3B.

Traders should monitor the bond market closely as capacity utilization and housing data unfold.

US Dollar Index (DXY) – Technical Analysis

The Dollar Index (DXY) is trading at 109.148, up 0.17%, as bullish momentum strengthens above the pivot point at $108.96. Immediate resistance is seen at $110.08, with higher targets at $110.69.

On the downside, key support lies at $108.41, with additional stability at $107.85. The index remains supported by an upward trendline, reinforcing the buying trend.

The 50-day EMA at $109.09 aligns closely with the current price, bolstering near-term bullish sentiment, while the 200-day EMA at $107.97 confirms the broader uptrend.

A sustained move above $108.96 keeps the bullish outlook intact, targeting $110.08, while a break below could trigger selling pressure toward $108.41.

US 10-year Bond Yields

The U.S. 10-year Treasury yield recently dropped to 4.609%, breaking below key support and signaling a potential shift in sentiment. This decline indicates increased bond demand, likely fueled by expectations of a Federal Reserve rate cut amid easing inflation.

The yield’s drop pressures the U.S. Dollar Index (DXY), as falling yields reduce the greenback’s appeal. A sustained decline in yields may weaken the DXY further, potentially boosting gold and other dollar-sensitive assets.

Traders should monitor the 4.572% and 4.511% levels for further movement, as continued downside could signal a broader risk-on sentiment in global markets.

Euro Steady as Trade Surplus Grows; CPI in Focus

The Euro strengthened as Germany’s Final CPI m/m rose to 0.5%, beating the forecast of 0.4%. Trade balance figures showed improvements, with Italy reporting a surplus of €4.22B, though below expectations.

The Eurozone’s overall trade surplus expanded to €12.9B, exceeding the €11.8B forecast.

Upcoming data on the Current Account (€28.0B forecast) and Final CPI y/y (2.4%) could further influence Euro sentiment. Traders remain cautious ahead of ECB monetary policy insights.

EUR/USD Technical Forecast

The EUR/USD pair is trading at 1.02853, down 0.10%, reflecting bearish momentum as it remains below the pivot point at 1.03071. Immediate resistance is seen at 1.03565, with further levels at 1.04370. On the downside, key support lies at 1.02380, followed by 1.01764, signaling potential areas of price stability.

The 50-day EMA at 1.02982 acts as a short-term resistance, while the 200-day EMA at 1.04108 highlights a broader bearish structure. A sustained move below 1.03071 reinforces selling pressure, targeting the 1.02380 level.

Conversely, a break above the pivot could spark renewed bullish interest, with potential upside toward 1.03565. Traders should watch the pivot for directional cues.