EUR/USD, Oil forecast: Two trades to watch

EUR/USD falls after weak German data & with retail sales in focus

• German factory orders fall -0.4% vs 0.4% expected.
• Eurozone retail sales are expected to rise 0.6% vs -0.5% previously.
• EUR/USD recovery stalls below 1.08

ER/USD is heading lower amid a stronger USD and after weaker-than-expected German factory orders.

German factory orders unexpectedly dropped 0.4% in March after falling 0.8% in the previous month, defying expectations of a 0.4% gain. The data points to persistent weakness in the sector, which is already lagging behind improvements in the wider economy.

The figures highlight the fragility of the recovery of the eurozone's largest economy. Recent sentiment indicators have pointed to a more bullish mood among businesses and households after the contraction at the end of 2023. However, the manufacturing PMI remained deep in contraction in April as services activity grew at the fastest pace in 10 months, highlighting the divergence between the two sectors.

Factories have been played by subdued global demand and high-interest rates weighing on investments.

Looking ahead, eurozone retail sales figures will be in focus. They are expected to rise 0.6% Month over Month in March after falling 0.5% in February. The rebound in retail sales is expected to come as inflation cools and wage growth remains robust.

Inflation cooled to 2.4% in March, paving the way for a June rate cut from the ECB.

Meanwhile, the US dollar is rising after falling 1% across the previous week, after the Federal Reserve ruled out the prospect of another rate hike and after weaker than expected US non-farm payroll report.

The US economic calendar is quiet this week, but several Fed speakers will be closely watched for clues about interest rates' future path.

Minneapolis Fed President Neel Kashkari is due to speak later, and his comments could influence the US dollar. The market is currently pricing in two Fed rate cuts this year, up from one rate cut last week.

EUR/USD forecast – technical analysis

EUR/USD failed to extend its recovery meaningfully above 1.08, the 200 SMA. The price trades caught between 1.0750 and 1.08, the 200 SMA.

The long upper wick on recent candles suggests that there was little demand at the higher price, which could encourage sellers to test 1.0750. Below here, 1.07, the February low comes into play ahead of 1.0640, the May low. Below here, 1.06 the 2024 low comes into focus.

Buyers need to extend gains above 1.0.8, the 200 SMA, and last week’s high, 1.0830. The falling trendline resistance and the confluence with the 100 SMA come into play. Above here, buyers could look to retake 1.0885, the April high, before bringing 1.10 into focus.

Oil rises ahead of inventory data

• Oil extends recovery for a second day as geopolitical tensions rag on
• Crude oil inventory data is expected to show a 1.2 million barrel draw
• WTI finds support on 100 SMA

Oil prices are rising, adding to modest gains yesterday which partly reversed last week's steep declines.

Reports that ceasefire talks between Israel and Hamas may have stalled are supporting oil prices. On Monday, Hamas agreed to a ceasefire proposal put forward by mediators, but Israel didn't and pressed ahead with strikes in the southern Gaza of Rafah.

The ongoing conflict in the Middle East supports oil prices amid fears that it could disrupt supplies in the region.

Meanwhile, on the demand side, Saudi Arabia lifted its official selling price for crude oil in Asia for June due to a strong demand outlook.

Still, oil prices remain close to a two-month low after booking their steepest weekly losses in three months last week as the markets focused on a reduced risk premium and the timing of Federal Reserve interest rate cuts.

Looking ahead, attention will turn to US crude oil stockpiles, which are expected to have fallen last week. API data is expected to show that crude oil fell by 1.2 million barrels in the week ending May 3rd.

Oil forecast – technical analysis

After falling out of its multi-month rising trendline, oil has found support on the 100 SMA at 78.00. Sellers, supported by the RSI below 50, will look to take out this level to extend the selloff towards 76.70, the March low, and 75.70, the mid-February low.

Should the 100 SMA support hold, buyers could look to extend gains back above the 200 SMA and psychological level of 80.00.  Above here 83.20, the March high comes into play ahead of 85.00.