• ECB’s Francois Villeroy said the central bank should not wait too long before starting rate cuts.

• There was a bigger-than-expected decline in US retail sales in January.

• Markets expect 94-bps of rate cuts in 2024.

The EUR/USD outlook took a bullish turn, propelled by slightly dovish commentary from ECB policymaker Francois Villeroy. Moreover, the dollar was weak after a sharp decline in the previous session due to poor sales data.

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On Friday, the ECB’s Francois Villeroy said that the central bank should not wait too long before starting rate cuts. According to him, it would be better to start early and cut gradually than to wait too long and do it aggressively.

Meanwhile, on Thursday, ECB president Christine Lagarde sounded more hawkish. According to her, the central bank will likely hold off on rate cuts to avoid prolonging high inflation. Notably, Eurozone inflation has been declining. However, most policymakers need more confirmation that it will not start rising again.

In the US, the dollar weakened after a dismal retail sales report. A bigger-than-expected decline in retail sales in January indicated poor consumer spending. Moreover, it showed that the economy was slowing down. However, this report had little impact on the outlook for rate cuts. Although bets for May edged higher, most traders now believe the first Fed cut will come in June.

Notably, the initial jobless claims report from the US showed a still-tight labor market. This report continued the recent trend of upbeat US data, leading to a decline in rate-cut bets. As a result, markets now expect 94bps of rate cuts in 2024, a significant decline from 160bps at the end of last year.

EUR/USD key events today

• US core PPI m/m
• US PPI m/m
• Prelim UoM Consumer Sentiment

EUR/USD technical outlook: Bullish sentiment emerges above 30-SMA

On the charts, sentiment has shifted from bearish to bullish as the price has broken above the 30-SMA resistance. The bullish move came after the price paused at the 1.0701 support level. Additionally, the price started making large-bodied bullish candles that broke above the SMA.

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Looking at the RSI, it is clear that bullish momentum is stronger now than it was the first time the price rose to retest the 1.0800 resistance level. Consequently, there is a higher chance bulls will break above 1.0800 to retest the 1.0900 critical resistance level.

https://www.forexcrunch.com/blog/2024/02/16/eur-usd-outlook-euro-surges-after-villeroys-less-dovishness/