The German consumer remains cautious with their spending, as retail sales in March declined by 2.4%, lower than the consensus of 0.4% and the February read of -1.3%. This marks the 4th drop in five months, indicating that the German recovery may be slow if consumer spending does not increase. Retail sales on an annualized basis also fell by 8.6%, below the consensus of -6.1% and February's reading of -7.1%. Germany's manufacturing PMI remained in contraction mode in March, which does not bode well for the country's economic outlook.
The European Central Bank (ECB) is expected to raise rates by 25 basis points during its meeting on Thursday, with an outside chance of a second-straight 50-bp hike. The eurozone CPI for April was released today, showing little change and is not expected to be a factor in the ECB's decision. Headline CPI increased to 7.0% compared to 6.9% in March, while core CPI dropped to 5.6% from 5.7%. Although the central bank aims to curb inflation, another 50-bp hike may lead to a sharp economic slowdown, potentially leading to a recession.
The Federal Reserve will hold its meeting on Wednesday, and the market pricing of a 25-basis point hike has increased to 96%, up from 75% a week ago. Q4 GDP showed a slowdown in economic activity, with the rate falling to 1.1%, but the Fed would like to see inflation, particularly the core rate, decrease at a faster pace.
EUR/USD is testing support at 1.0967 and may see further support at 1.0893. The currency pair has resistance levels at 1.1088 and 1.1157.
The news of German retail sales declining and eurozone inflation remaining steady may impact the forex market. The EUR/USD pair may experience a decline due to the decrease in German consumer spending and the potential rate hike from the ECB. The Fed's decision to potentially raise rates may also affect the forex market, with traders keeping a close eye on the core inflation rate. It is essential to stay up to date on global economic news to make informed forex trading decisions.