EURUSD: Will the Sentiment support a lifeline amid growing stagflation fear across the region?

Can the ZEW Better-than-Expected Figure Neutralize the Impact of Robust US Retail Sales?

Inflation revision

European Central Bank revised its inflation forecast relevant to the Iran war creating negative supply shock which means affecting the costs in energy in consumption of oil and commodities which may hamper the increased value of the Euro. If there are shifts of the aggregate supply would continue, this might lead to higher inflation and result to stagflation. This may remain volatile because the European Central Bank is poised in difficult decision while injecting factors such as energy dependency since oil act as tax on consumers, inflationary pressure which may result to increase interest rates, safe-haven flow since during war capital flows out of Europe and may prefer to US dollar denomination assets.

The EURUSD is struggling under the weight of a stagflation outlook as surging energy prices from the Middle East conflict strain European growth and leave the ECB in a policy deadlock.  Bearish trend pressure intensified following a -5.8 reading in today’s German ZEW Sentiment, confirming deep institutional caution and keeping the Euro capped under the 1.18 handle. Now looking at the US Retail Sales report, as a potential upside surprise could pose a rally on the Dollar and make the pair toward direct to its major support level at 1.1700.

What are key drivers to affect the pair?

ZEW Economic Sentiment Index

This indicator measures how optimistic 350 top financial experts view about the economy for span of 6 months. If today's number higher than -6.7 to -10.0 forecast, Euro usually rallies if it is lower, expect the currency to drop toward 1.1700.

US Retail Sales

What trend do we expect from the pair?

Neutral to bearish as the pair struggles to maintain the 1.18 level

• Resistance 2 1.1860 target sustained breakout, if ZEW optimistic scenario
• Resistance 1 1.1811 a break on this level may confirm bullish intraday or retest if the ZEW is positive
• Pivot 1.1782 current price
• Support 1 1.1746 previous support in February-March if worse than expected for the ZEW
• Support 2 1.17000 a break here may tend to have reversal
• RSI (Relative Strength Index) 53.29

Conclusion & The ACY Edge

The EUR/USD remains at risk as the Eurozone steer a declining macroeconomic environment. With the European Central Bank trapped in a policy draw between energy-fueled inflation and looming stagflation, market sentiment continues to lean bearish. Although the -5.8 ZEW Sentiment reading cleared the most bearish projections, it nonetheless underscores a wary institutional climate that currently lacks the drive to lift the Euro past the 1.18 resistance level.

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