EUR/USD recovers poise but upside potentially limitedTechnical resistance at 1.0946 may stymie further gainsBut supports near 1.0840 & 1.0725 could arrest lossesU.S. CPI & retail sales eyed as EU calendar falls quiet

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The Euro to Dollar exchange rate shifted back onto its front foot and appeared poised for further gains in the opening session of the holiday-shortened week but would likely struggle to advance beyond a nearby technical resistance level without further losses for the greenback over the coming days.

Europe's single currency outperformed most major counterparts in early Tuesday trade while remaining among the top performers for the recent week and month but much about price action in the week ahead is likely to be determined by developments beyond the borders of Europe.

Notably, what U.S. data suggests about the pace of the slowdown in the world's largest economy is likely to remain a key influence on the Dollar and Euro, and with any hint of a more rapid slowdown or 'hard landing' of the economy potentially acting as a weight around the ankles of EUR/USD.

"To us, it feels like early February (again), with the market narrative a bit out-of-step with—or at least over-extrapolating from—the data itself," says Kamakshya Trivedi, co-head of global foreign exchange strategy at Goldman Sachs.

"At the same time, if we are wrong and activity declines more quickly, then price action this week also demonstrates that the Dollar’s safe-haven status makes it hard for USD to sell off too far on negative news," Trivedi and colleagues write in a Friday research briefing.

Above: Euro to Dollar rate shown at 4-hour intervals with selected moving averages denoting possible areas of technical support for the single currency. Click image for closer inspection.

The Euro had appeared on course to retest this year's highs last week when the Institute for Supply Management warned of an abrupt slowdown in U.S. manufacturing and services sectors with PMI surveys that were followed on Friday by a mixed non-farm payrolls report for last month.

U.S. economic data might hinder the recovery again this week if inflation falls by less than is expected on Wednesday, or if retail sales fall by more than is expected on Friday, although there are technical supports around 1.0840 and 1.0725 that might also be likely to limit any losses for the Euro.

Inflation is widely expected to fall to 5.2% for the month of March on Wednesday in what would be its 10th consecutive decline but market attention is likely to be fixated more keenly on the core inflation number and the consensus among economists suggests this rose from 5.5% to 5.6%.

"The Cleveland Fed’s ‘nowcast’ suggests another strong 0.5%/mth (~6% annualised) increase in core inflation," warns Joseph Capurso, head of international economics at Commonwealth Bank of Australia.

"If the Cleveland Fed’s estimate proves correct, pricing for near term cuts to the Funds rate may partly unwind. A significant unwind of rate cuts may support the USD," Capurso adds in a Monday research briefing while warning of scope for EUR/USD to fall back to its 50-day average near 1.0734 this week.

Above: Euro to Dollar rate shown at daily intervals with Fibonacci retracements of November rally and selected moving averages denoting possible areas of technical support for the single currency. Click image for closer inspection. (If you are looking to protect or boost your international payment budget you could consider securing today's rate for use in the future, or set an order for your ideal rate when it is achieved, more information can be found here.)

Financial markets have bet confidently since last month's failure of Silicon Valley Bank that the Federal Reserve is likely to begin cutting its interest rate later this year, although they could be compelled to rethink or even reverse these wagers if the core inflation rate rises far enough on Wednesday.

That sort of outcome would be an almost sure-fire headwind for the Euro and likewise if retail sales data encourages safe-haven demand for Dollars, although many analysts say that any such setbacks would likely be mere temporary interruptions of a broader and longer-lived recovery trend.

The U.S. calendar is the main focus of an otherwise quiet week ahead for EUR/USD, although the single currency is still likely to pay close attention to a scheduled speech from European Central Bank Vice President Luis de Guindos on Wednesday, which is the highlight of the European calendar.

"There isn’t much wrong with being a dollar bear – relative monetary policy prospects, and the high historic dollar valuation are both going to help – but long EUR/USD (in spot) may be a frustrating ride as positioning causes frequent pullbacks," says Kit Juckes, chief FX strategist at Societe Generale.

"The speculative market is still short GBP and CHF, so maybe those are better bets, though the extent of divergence from the EUR/USD trend will be limited," Juckes writes in a Monday market commentary.

Above: Euro to Dollar rate shown at weekly intervals with Fibonacci retracements of June 2021 and February 2022 downtrends indicating possible areas of technical resistance for the Euro, and including selected moving averages.