US stocks bounced back after falling sharply earlier this week. The Dow Jones, S&P 500. And Nasdaq 100 index gained by more than 1% as investors rushed to buy the dips. They have also rallied during the futures market. Data published by the US painted a picture of an economy that is in recovery mode. Initial jobless claims declined from 507,000 in the previous week to 473,000. Continuing claims also declined from 3.7 million to 3.6 million. The data shows that the labour market is getting tight. Even, companies like McDonald’s raised their wages to attract workers.
Meanwhile, there are still some inflation concerns. On Wednesday, data showed that the general and core consumer price index (CPI) rose by 4.2% and 2.3%, respectively. Companies are also facing inflation pressure as evidenced by the producer price index data. Data published yesterday showed that the headline PPI rose by 0.6% in April and by 6.2% on a year-on-year basis. Similarly, the core PPI increased by 0.7% and by 4.1% on a year-on-year basis. These numbers caught many market participants, including some Fed officials off-guard. However, there are hopes that the ongoing higher inflation pressures will be temporary.
The US dollar was little changed in the overnight session as the market waits for the upcoming retail sales numbers. Economists expect the data to show that headline retail sales rose by 1% in April after rising by 9.7% in the previous month. Core retail sales are expected to rise by 0.7% in April after rising by 8.4% in the previous month. In March, retail sales jumped substantially after the US passed a record $1.9 stimulus package that gave many Americans $1,400 stimulus checks.
The EUR/USD pair was little changed in the American and Asian sessions ahead of the latest US retail sales numbers. The pair is also trading at 1.2083, which is slightly above yesterday’s low of 1.2042. On the four-hour chart, the price seems to be forming a bearish flag pattern. It is also slightly above the ascending trendline and slightly below the 25-day moving average. The Relative Strength Index (RSI) has moved from the overbought level of 70 to the current 45. Therefore, the outlook for the pair is neutral. More declines will be confirmed if the price manages to move below the ascending trendline.
The GBP/USD pair declined to the important support of 1.400. It is currently trading at 1.4046, which is substantially lower than this week’s high of 1.4167. The price is slightly below the dots of the Parabolic SAR and slightly above the 25-day moving average. The RSI has also moved from the overbought level of 86 to 47. Therefore, the outlook for the pair is bearish if sellers can move below the support at 1.400.
The AUD/USD pair declined to 0.7690 during the overnight session. On the four-hour chart, the pair has moved below the two lines of the envelopes indicator. It is between the channel shown in red whose support and resistance are at 0.7690 and 0.7817. It is also slightly above the 61.8% Fibonacci retracement level. Therefore, the pair may bounce back as bulls attempt to test the upper side of the channel.