Last Friday, the US dollar index hit a 5-day low in response to the disappointing retail sales data. It should be noted that the US macroeconomic statistics are surprising in both positive and negative contexts. The extremely weak Nonfarm is followed by a strong inflationary release. However, the dollar bulls had no time to take advantage of investors' optimism, as Friday's statistics pulled the dollar index to the bottom of the 90th mark.
In turn, the EUR/USD pair stayed in a wide price range. On the one hand, the buyers of this instrument were able to consolidate within the level of 1.21, but on the other, they could not break through the resistance level of 1.2170 (upper line of the Bollinger Bands indicator on the daily chart). The bears also tried to show their intention during the past week by testing the level of 1.20. But as soon as the EUR/USD pair declined below 1.2100, the downward impulse slowly disappeared, meeting active resistance from buyers. From the point of view of technical analysis, the priority is long position. However, an appropriate informational reason is needed for a price breakthrough, which will help the EUR/USD bulls to take a new price level in the area of the 1.22 level.
It is noteworthy that dollar bulls did not stay optimistic for long after the release of American inflation growth. The indicators updated long-term records, but this fact did not impress the members of the US regulator. Many Fed officials have voiced their position since last Wednesday, and all of them said that the impulse growth of inflation will not be the basis for revising the parameters of monetary policy. The general dovish position is reduced to several rhetorics. First, the Federal Reserve stated that the growth of inflation will be temporary, and will decline in the second half of the year. Secondly, the representatives of the Central Bank said that inflation growth is due to the effect of last year's low base, when the coronavirus crisis began to fully manifest itself. Third, the members of the regulator do not get tired of repeating that the Fed needs a steady increase in inflation, and not a one-time inflationary surge.
Some Fed members (in particular, Central Bank Vice President Richard Clarida) also spoke about the uneven recovery of the US economy. At the same time, they pointed out that the failed Nonfarm data reflected the rise in unemployment. Friday's releases also disappointed traders, confirming the concerns of Fed members.
Therefore, the April volume of US retail sales was at zero level after strong growth in March. It can be recalled that the March indicator updated the annual record, reaching 10%. But, the indicator, excluding car sales, fell to the negative area altogether, being at the level of -0.8%. Both components entered the "red zone", not meeting the forecasted values. The decline in sales in April was recorded in 8 of the 13 retail categories.
However, it wasn't just retail sales that disappointed investors on Friday. Other indicators also came out In the "red zone". For example, the volume of industrial production rose by only 0.7%, with the forecasted growth of 0.9% and the previous value of 2.4%. The University of Michigan consumer sentiment index slowed to 82 points. The indicator has been consistently increasing for three months, and according to forecasts, it should have shown a positive trend in May (rising to 90 points), but the real result disappointed market participants.
In other words, a lot of macroeconomic statistics published on Friday finally cancelled investors' "hawkish" expectations. The Fed members only confirmed the correctness of such conclusions with their "dovish" rhetoric.
On another note, the ECB supported the Euro currency last week. The minutes of the April meeting, published on Friday, made it clear that the members of the regulator will discuss the issue of curtailing the Emergency Asset Purchase Program (PEPP) in June. The document states that "a new comprehensive joint assessment should be carried out at the next meeting on monetary policy." In general, this fact did not surprise traders – some members of the European regulator allowed this scenario to develop. In fact, the uncorrelation of the positions of the Fed and the ECB supported the buyers of EUR/USD.
From the technical point of view, the pair on the daily chart is still located between the middle and upper lines of the Bollinger Bands indicator, as well as above all the lines of the Ichimoku indicator, which still shows a bullish signal "Parade of Line". All this suggests that the pair retains the potential for its further growth – at least to the first resistance level of 1.2170 (upper line of the Bollinger Bands indicator on D1). The breakdown of this level will open the way to the next resistance levels (1.2200 and 1.2240). The support level is located at 1.2080 – middle line of the Bollinger Bands indicator, which coincides with the Tenkan-sen line on D1.