US DOLLAR FORECAST – EUR/USD, USD/JPY The U.S. dollar slides but rising U.S. yields keep losses contained U.S. PPI and retail sales data on Thursday will steal market’s attention This article examines the outlook for EUR/USD and USD/JPY
The U.S. dollar experienced a slight dip on Wednesday, although its descent was cushioned by an uptick in U.S. Treasury yields. In any case, FX volatility remained subdued as traders appeared to refrain from taking large directional positions ahead of Thursday's key events on the U.S. calendar: the unveiling of the Producer Price Index (PPI) and advance monthly sales for retail and food services
Earlier in the week, the CPI report, which handily topped consensus estimates, failed to convince Wall Street that the Federal Reserve could wait a little longer before removing policy restriction. Sentiment, however, could change if incoming data continues to come on the hot side, as this scenario could compel traders to reassess the central bank’s path.
We’ll gain greater clarity on broader price trends and the health of the U.S. consumer tomorrow with the release of February's PPI and retail sales figures. Another upside surprise in the macro numbers could lead to the realization that inflation risks and the strength of the economy have been underestimated, triggering a hawkish repricing of interest rate expectations. This should be bullish for the U.S. dollar.
The following table presents the current market projections for both reports.EUR/USD has climbed sharply this month, taking out critical levels during the rally. If gains accelerate in coming trading sessions, resistance appears at 1.0980 and 1.1020 thereafter. On further strength, all eyes will be on 1.1075, a key ceiling created by a medium-term descending trendline.
Conversely, if sellers return to the charge and trigger a bearish reversal, support can be spotted at 1.0890, followed by 1.0850, an area where three key moving averages converge. Further losses from this point forward will bring the spotlight on 1.0790.
USD/JPY ticked up on Wednesday, consolidating above resistance at 147.50. If prices manage to remain above this threshold in the near term, we could soon see a move towards the 50-day simple moving average at 148.35. Subsequent strength would then shift focus to 148.90, followed by 149.70.
On the other hand, if selling pressure remerges and sparks a pullback beneath 147.50, the pair may gradually retreat towards a confluence support region ranging from 146.30 to 146.00. Below this floor, market scrutiny will be directed towards the psychological 145.00 level.
