Retail Sales Surprise! Euro CPI Flat – What’s Next for Forex?

Retail sales and European CPI data shape my outlook for next week, especially ahead of the FOMC rate decision.

Yesterday, Eurozone CPI came in exactly as expected—neutral to slightly bearish—which supports my view that the ECB will likely continue cutting rates. I expect the euro to weaken further, with EUR/USD targeting 1.15.

Later, U.S. retail sales data surprised to the upside. Core retail sales were expected at 0.3% but printed 0.5%, while overall retail sales jumped from a 0.1% forecast to 0.6%. Both figures beat prior numbers, signaling strong consumer spending. This suggests inflationary pressures remain sticky despite earlier headlines that looked reassuring. Rising household costs—furniture, appliances—reflect the impact of tariffs and supply issues.

With spending high, I believe inflation will edge higher next quarter, limiting the Fed to only 50 basis points of cuts this year versus earlier 75 bps expectations. For now, the Fed likely pauses at the upcoming meeting, with cuts pushed into later in the year.

From a trading perspective, I’m still short bias EUR/USD, GBP/USD, and AUD/USD while maintaining a bullish outlook on USD/JPY. Australia’s unemployment rate spiking to 4.3%, the highest since 2022, reinforces my bearish stance on the Aussie as the RBA faces pressure to cut.

As we close the week, I expect USD strength to persist and risk currencies to remain under pressure.

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