The EUR/USD rebounds following the expected decline in US inflation and weak retail sales data

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The EUR/USD updates monthly highs near 1.0870 in the US American session. The EUR/USD strengthens as the US Consumer Price Index (CPI) softens in line with estimates and monthly retail sales remain stagnant in April.

The anticipated decline in price pressures in the US economy, along with weak retail sales data, is an unfavorable situation for the US Dollar and bond yields. The US Dollar Index (DXY), which tracks the value of the Dollar against six major currencies, falls to over a month lows around 104.50.

US 10-year Treasury yields have also plummeted to 4.36%, as weak data is expected to increase expectations that the Federal Reserve (Fed) will begin cutting interest rates starting from the September meeting. This will also boost confidence among Fed policymakers, concerned about stagnation in progress in the disinflation process, as the previous three reports were more bullish than expected.

The annual overall CPI softened as expected to 3.4% from March’s 3.5%. Over the same period, core inflation, which removes volatile food and energy prices, grew in line with estimates, to 3.6%, but slowed from the previous reading of 3.8%. The monthly overall CPI rose at a slower pace of 0.3% compared to consensus and the previous reading of 0.4%, and core CPI meets estimates of 0.3% but declines from the previous reading of 0.4%.

US retail sales, which are a leading indicator of consumer spending and provide clues about inflation prospects, remained stagnant in April. Investors expected slower growth of 0.4% in retail sales, compared to the previous reading of 0.7%.

Meanwhile, the Euro remains optimistic as investors expect the Fed’s longer interest rate hike to slow the pace at which the European Central Bank (ECB) was expected to normalize its policy.

Technical analysis: EUR/USD rises to 1.0870

The EUR/USD rises above the round resistance of 1.0800. The asset has advanced to the descending edge of the symmetrical triangle pattern formed on a daily timeframe, which is plotted from the December 28 high around 1.1140. The ascending edge of the triangle is marked from the October 3 low at 1.0448. The formation of the symmetrical triangle shows a strong volatility contraction.

The major currency pair is at a breakout point near 1.0870. A breakout of the symmetrical triangle formation could put Euro bulls in the driver’s seat for a longer period. Conversely, strong selling pressure could drag them towards the bullish boundary.

The 14-period RSI rises to 60.00. A bullish momentum would be triggered if the RSI remains above these levels.