The dollar side of the equation will come into focus this week
The pair has recovered to the 50.0 retracement level of the ECB drop last Thursday but even so, the near-term bias remains more bearish as price holds below both key hourly moving averages. For buyers, it is trying to find a break above the 100-hour MA (red line) to try and establish some control for a further retracement higher. For sellers, it is all about maintaining that level.
The ECB decision last week has taken a lot out of the equation for the euro with regards to economic data releases. Lagging hard data that shows weakness/softness is very much priced into the downgrade in growth projections already and the fact that the ECB has now said that it won't raise rates this year takes out any positive pricing from economic data points for 1H 2019 at least.
So, what's left for EUR/USD direction if that's the case?
A dovish ECB is very much expected to continue into 2H 2019 so that is the base case for the euro side of the equation. Hence, it is the dollar side that will present the most near-term risks for the pair starting with today's retail sales data.
And later on in the week we'll also have US CPI and durable goods orders in the picture to add to dollar sentiment. Those will be key risk events to watch out for this week in EUR/USD.
Looking at the daily chart, sellers will have to find a way to break below the 61.8 retracement level @ 1.1187 for a further extension to the downside. That will be a pivotal level to watch out for in the coming sessions.
All that considered, the bar is rather low for EUR/USD to fall, just as long as US economic data doesn't disappoint. That said, it is not an easy bar to jump over for the dollar as it requires consistent economic performance; something that is lacking in global markets right now.
But with the euro going to struggle to find rallies, I would expect downside momentum to still prevail in the big picture. However, if the dollar side of the equation disappoints, the ECB drop seen last week could well be erased before we see another trip lower thereafter.
