The euro has posted slight losses on Thursday. EUR/USD is down 0.20%, trading at 1.0860 in the North American session at the time of writing.

ECB warns of risks to financial stability

The ECB’s Financial Stability Review expressed concern that financial stability could be affected by the possibility of “adverse economic and financial surprises”. Geopolitical tensions such as in Ukraine and the Middle East had the potential to trigger large market reactions to negative news and the report warned that elections in the US and the European Union added more uncertainty. Still, the report found that overall threats to financial stability in the EU had lessened compared to the previous report six months ago.

The eurozone is showing signs of recovery and that has prompted the ECB to signal that it plans to lower interest rates next month, although it hasn’t provided any hints about rate plans after June.

US CPI drops to 3.4%, US dollar slips

A drop in April CPI on Wednesday reversed a trend of inflation moving higher and raised expectations of a Fed rate cut. The stock market responded with sharp gains while the US dollar was broadly lower and fell 0.54% against the euro on Wednesday.

The markets have priced in a September rate cut at 74% and a rate cut before the end of the year at 94%, according to the CME FedWatch tool.

Overlooked by all the attention to the inflation report, US retail sales fell sharply to 3% y/y in April, down from a revised 3.8% in March. Monthly, retail sales were flat, compared to a revised 0.6% in March. This points to consumers cutting down on spending due to high interest rates and could be a sign that the strong US economy is cooling down.

EUR/USD Technical

• EUR/USD is testing support at 1.0861. Below, there is support at 1.0836
• There is resistance at 1.0909 and 1.0934

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