Forex Friday – February 9, 2024

• EUR/USD outlook: Key US data eyed for next week include US CPI and retail sales
• Sluggish Eurozone economy holding back EUR, while hawkish Fed keeps USD underpinned
• EUR/USD technical outlook remains bearish

Welcome to another edition of Forex Friday. In this week’s report, we will discuss the US dollar, upcoming data releases from the US next week, and why we think the EUR/USD is heading lower.

FX markets favour USD while JPY disliked amid not-so-hawkish BoJ

The EUR/USD and FX markets in general have been rather quiet, although the yen stole the show this week as comments from the Bank of Japan’s Deputy Governor sent the currency tumbling, lifting the USD/JPY above 149.00 and en route to 150.00. Will it get there today or in the week ahead remains to be seen, but fundamentally there is no major reason to doubt it. The EUR/USD has been drifting lower and looks poised to take out the December low at 1.0723. While the US macro calendar is quiet today, we will have plenty to look forward to in the week ahead, including CPI and retail sales data. The Eurozone macro calendar is quieter, but it should be a busy week for GBP/USD traders, with plenty of market moving data from the UK also scheduled for release.

EUR/USD outlook: Key US data eyed for next week

In the week ahead, we will have plenty of potentially market-moving data to look forward to from the US, including CPI, PPI, retail sales and consumer sentiment survey.

Among these, CPI and retail sales are probably the most important macro pointers for the dollar, and thereby EUR/USD outlook, as well as gold and equity markets.

This week saw the FX markets largely remain in the favour of the dollar, with the greenback remaining supported despite the lack of any further major news. The week before, a rather strong US jobs report and a few other data pointers came in ahead of expectations, while the Fed Chair Powell and his FOMC colleagues all but ended hopes of an early rate cut. That didn’t stop the big tech rally on Wall Street, however, as the S&P 500 crossed the 5K mark for the first time ever, largely thanks to stronger company earnings reports. A hotter inflation reading could underpin the dollar even further, while a weaker print would be welcomed by gold investors and reduce the bearish EUR/USD outlook.

Once CPI is out of the way, the focus will then turn to CPI and the week’s other data highlights. The health of the US consumer has been highlighted by the recent above-forecast retail sales figures, which have beaten expectations in each of the last 6 months. In December, retail sales rose 0.6%, while core sales climbed 0.4%. The stronger retail sales numbers have been accompanied by rising consumer sentiment in the last few months. Correspondingly, the unemployment rate has stayed low, wages growth high and inflation slow to come back down. The Fed has had no reason to loosen its policy sooner than expected. If next week’s data releases including…