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EUR/USD weighs up Trump & Powell ahead of US retail sales

• USD rises on Trump trade & Powell limits gains
• German ZEW economic sentiment data due
• US retail sales are forecast to stall at 0%
• EUR/USD struggles to rise above 1.0915

EUR/USD is flat at 1:09 after small losses yesterday, as investors look to US retail sales and German ZEW economic sentiment data.

The US dollar has extended its recovery from a 5-week low against its major peers amid rising speculation that Trump will win the November election. A second term in office for Trump is considered positive for the US dollar, given Trump's protectionist policies, which would inflationary pressures.

Still, gains in the US dollar are being capped by a more dovish-sounding Federal Reserve chair, Jerome Powell, who yesterday said he had more confidence that inflation was cooling towards the 2% target. The market is now fully priced in a September rate cut.

Attention now shifts towards US retail sales for further cues about how the consumer is holding up.

Meanwhile, the euro is focused on Thursday's ECB meeting. The central bank is widely expected to leave rates on hold at 3.75% but could prepare the market for a September rate cut.

With inflation once again easing towards the 2% target, unemployment still at record low levels, and service sector inflation sticky, policymakers want to see more evidence of Curry inflation before cutting again.

German ZEW economic sentiment is released and is expected to deteriorate. Weaker economic sentiment could raise concerns of an economic slowdown. The data comes after industrial production fell again in May with Germany seeing the lowest output in around a year.
 

EUR/USD - technical analysis

EUR/USD has extended its runup from 1.0670, the June low, to 1.0915, the June high. Bulls supported y the RSI above 50 will look to break above 1.0915 to extend gains towards 1.0980 the March high and on towards 1.10 the psychological level.

On the downside, support can be seen at 1.08 the 200 SMA. A break below here could see sellers gain traction and push the price towards 1.07.

(Click on image to enlarge)

FTSE under pressure on Trump trade & China worries

• Trump trade is buy US over everything else
• China's economic recovery worries continue to weigh
• FTSE tests 8125

The FTSE and its European peers started Tuesday in the red, as the Trump trade seemed to translate into buying the US and selling the rest.

Speculation Is growing that Trump will win a second term as president following a shooting at the weekend, which has dramatically lifted Trump’s ratings. However, protectionist policies that support are likely to favour the US over Europe.

As well as Trump, concerns over China's economic recovery continued to weigh, with minors once again under pressure and Burberry selling off further after a profit warning yesterday. Weak China demand also hurt sales at luxury goods firm Richemont, adding to the downbeat mood towards luxury retailers exposed to China.

On the upside, retailers and supermarkets benefit from news that grocery inflation in the UK has hit its lowest level in three years.

According to Kantar, grocery price inflation in the UK fell to 1.6% in the four weeks to 7 July, a level last seen in September 2021. The drop in inflation coincided with the fastest increase in monthly footfall seen this year. UK shoppers made 2% more trips to the supermarket thanks in part to the Euro 2024 tournament.

Delving deeper into the numbers, Ocado is once again the fastest-growing grocer, with sales up 10.7%. The online retailer now holds 1.8% of the market. Tesco has a 4.6% increase in sales, and now it has 27.7% share of the market.

Looking ahead, the UK economic calendar is quiet. Attention will be on the US, with retail sales potentially impacting sentiment.
 

FTSE 100 forecast – technical analysis

The FTSE trades within a falling triangle. The price rebounded lower from the falling trendline and has tested support at 8125 again.

Sellers need to take out support at 8125 to test 8000, the psychological level.

Buyers will need to rise above the falling trendline at 8245 and the 50 SMA at 8265 to extend gains towards 8364, the June high.

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