EUR/USD: Eyeing the oversold side

The week on the US market was about inflation figures. As per posted data, inflation in April was standing at 0,6% m/m and 3,8% on a yearly basis. Core inflation continues to be elevated at 0,4% m/m and 2,8% y/y. Figures were just a bit higher from estimated 0,5% m/m and 0,3% m/m for core inflation. The Producers Price Index in April jumped by 1,4% for the month, significantly higher from expected 0,4%. The PPI index in April of even 6% on a yearly basis was also higher from estimated 4,7%. As from other US data, the Existing Home Sales in April were higher by 0,2% m/m, well below expected 2,1% m/m. Retail Sales grew by 0,5% in April a bit higher from forecasted o,4%. The Industrial Production in April jumped by 0,7% for the month, better from estimated 0,1% m/m.
The ZEW Economic Sentiment Index in May in Germany continued to be in a negative territory of -10,2 however, much better from anticipated -21. Wholesale prices in April in Germany were higher by 2%m/m and 6,3% y/y, which was higher from forecasted 1% m/m. The Industrial Production in the Euro Zone was higher by 0,2% in March, lower from anticipated 0,5%. The second estimate for GDP Growth rate for Q1 in the Euro Zone was at 0,1% q/q and 0,8% y/y. Figures were in line with expectations. The Industrial Production in the Euro Zone in March dropped by -2,1% for the year, which was significantly higher from estimated -1,4% y/y.
Although both EU and US are economies currently passing through some challenging times, with increasing inflation in the US and drop in the industrial production in the Euro Zone, markets favored US Dollar during the previous week. The week started with another short testing of 1,18 resistance, and turned to the downside, reaching the lowest weekly level on Friday, at 1,1626 where the market was closed. The RSI moved below the level of 50, closing the week at 41, indicating that the market is currently eyeing the oversold market side. The MA50 is currently moving as a parallel line to MA200, with some probability for another cross in the future weeks.
Last week the currency pair created a double top formation in the technical analysis, in which sense, a move toward the downside was expected, to some extent. At least, this formation increased the probability for a short reversal, as it happened. Whether this correction is over with Friday lows, is about to be seen from the start of the week ahead. The level of 1,1620 is a high from the end of March, however, charts are also pointing toward the 1,1580 as the low from mid January and also from the beginning of April. So this could be a range to the downside, where EUR/USD could go in case that correction continues. This also collides with the RSI, who ended the week at 41. A further move to downside will bring the indicator to a clear oversold zone, from where a reversal could be expected. It should be considered that markets continue to be in a risk-on zone, where inflation and oil price or geopolitical risk (which is connected to inflation) should be closely monitored. Any negative news could trigger a significant move on markets.