EUR/USD maintains its position around 1.0770, focus on US PPI

• EUR/USD retreats amid market optimism ahead of US PPI.
• Euro gained ground on Thursday as the US Dollar declined after disappointing Retail Sales data.
• ECB’s Villeroy stated that there are several reasons for not waiting too long before the first rate cut.
• US Retail Sales (MoM) declined 0.8% in January compared to the expected 0.1% decline.

The EUR/USD pair retreats after two days of gains, edging lower to near 1.0770 on Friday. The market optimism supports the US Dollar (USD) against the Euro (EUR) ahead of key data events, particularly the Producer Price Index (PPI) and Michigan Consumer Sentiment Index from the United States (US) scheduled to be released on Friday.

European Central Bank (ECB) Governing Council member Francois Villeroy de Galhau mentioned that there are several reasons why they should not wait too long before the first rate cut. While the idea of a rate cut this year appears likely, the exact timing is still under consideration. There's ample room for adjusting rates without immediately resorting to an accommodative monetary policy.

The US Dollar Index (DXY) attempts to retrace its recent losses on the back of higher US Treasury yields. The market sentiment is biased to the idea that the US Federal Reserve (Fed) will avoid rate cuts in March and May. The CME FedWatch Tool shows a 52% likelihood of a 25 basis points (bps) rate cut in June. The disappointing US Retail Sales data on Thursday contributed downward pressure to undermining the US Dollar, which in turn, acted as a tailwind for the EUR/USD pair.

Daily digest market movers: EUR/USD declines on stronger US Dollar

• The US Dollar Index trades around 104.30, with the 2-year and 10-year US Treasury yields standing higher at 4.62% and 4.27%, respectively, at the time of writing.
• Federal Reserve Bank of Atlanta President Raphael W. Bostic seeks further improvement in inflation, but it could be bumpy. He mentioned that if inflation retreats faster, it could prompt a reassessment of his stance on the outlook for interest rates.
• US Retail Sales showed that consumer spending decreased by 0.8% MoM in January against the market prediction of a 0.1% decline following the previous increase of 0.4%.
• US January’s Retail Sales Control Group declined by 0.4% compared to the previous increase of 0.6%.
• US Initial Jobless Claims reduced to a figure of 212K for the week ending February 9 from the previous reading of 220K. Claims were expected to be unchanged.
• US Industrial Production (MoM) contracted by 0.1% in January, against the expected 0.3% improvement from a flat 0.0% prior.
• Christine Lagarde, the President of the European Central Bank (ECB), stated that recent data indicates ongoing subdued economic activity in the near term. While the current disinflationary trend is anticipated to persist, Lagarde emphasized the importance of ensuring confidence that this trajectory will ultimately lead to the sustainable achievement of the ECB's 2% inflation target.
• The preliminary Eurozone Gross Domestic Product (GDP) seasonally adjusted grew by 0.1% year-over-year in the fourth quarter, as expected. The GDP quarter-over-quarter remained flat at 0.0%.
• Germany’s Wholesale Price Index (YoY) declined by 2.7% YoY in January from the previous 2.6% fall. The month-over-month index increased by 0.1% from the previous decline of 0.6%.

Technical Analysis: EUR/USD hovers near 1.0770 below 38.2% Fibonacci retracement

EUR/USD trades near 1.0770 on Friday, which is located below the immediate resistance level at 38.2% Fibonacci retracement of the 1.0897-1.0695 downward move at 1.0772. A break above this level could lead the pair to test the 50.0% retracement level at 1.0796 aligned with the psychological resistance at 1.0800 level.

On the downside, the EUR/USD pair could find the key support around the nine-4hour Exponential Moving Average (EMA) at 1.0755 in conjunction with the major support at 1.0750 level. A break below this level could push the pair to navigate the support region around the psychological level of 1.0700 in line with February’s low at 1.0694.

In technical analysis, the EUR/USD pair shows a 14-4hour Relative Strength Index (RSI) above the 50 mark, signaling a bullish sentiment. Additionally, the Moving Average Convergence Divergence (MACD) is positioned above the centerline and the signal line, indicating a confirmation of the bullish momentum.

EUR/USD: Four-Hour Chart