The EUR/USD currency pair inched up 7 pips on Tuesday, to close at 1.105 dollars per euro, after the U.S. Department of Commerce said that retail sales unexpectedly dropped 0.3% in June, missing the median Bloomberg economist’s forecast of a 0.3% gain. Core sales, the figures that are used to calculate gross domestic product (GDP) and which exclude such categories as autos, gasoline stations and building materials, declined 0.1% last month, missing the expectations of a 0.3% gain. 

Weak June retail sales could cause the Federal Reserve to lower its GDP forecast again and think twice about raising the rate by September. After the two-day Federal Open Market Committee (FOMC) meeting in June, the Fed sharply downgraded their economic forecast for this year to between 1.8% and 2.0%, from the previous forecast in March of between 2.3% to 2.7%.

In fact, there are some signs of divergence between the U.S. and eurozone economies. The European Union's statistics office said earlier this month that the eurozone May retail sales rose 0.2% from April, and were up 2.4% from May last year, beating a Wall Street Journal poll of economists forecast for a 0.1% rise. Robust consumer demand in the eurozone prompted Standard & Poor's Ratings Services to raise its eurozone growth forecasts to 1.6% in 2015 and 1.9% in 2016, from its 1.5% and 1.7% forecasts made in March.

The EUR/USD tumbled 1.40% on Monday to close at 1.098 dollars per euro, as the currency market’s concerns rose that Greece’s third bailout deal could be another kicking the can down the road. After 17 hours of European leader talks on Sunday, Greek Prime Minister Alexis Tsipras finally capitulated and accepted the framework for the third bailout negotiations. It is not a done deal yet, as Mr. Tsipras needs the Greek parliament vote in the next 48 hours to approve the package of reforms. Germany's Bundestag lower house of parliament will likely vote on Friday on whether to allow Angela Merkel’s government to start negotiations with Greece. 

As of July 7, there are 202,100 short positions of euro FX (CME:6E), traded on the Chicago Mercantile Exchange (CME), by asset manager/institutional and leveraged funds. This is compared to about 101,291 long positions, according to the Commitment of Traders (COT) data released by the Commodity Futures Trading Commission (CFTC) each Friday. Net long positions have increased about 32,449 contracts since June 16, where euro FX contracts are traded in units of 125,000 euros.

From our technical viewpoint, the EUR/USD has bounced along the 100-day SMA since the beginning of July with a short-term trendline support between 1.092 and 1.098 dollars per euro, and a head resistance at the 50-day SMA, or 1.117 dollars per euro. The currency market could be waiting for the outcome of the Greek parliament vote to approve the package of reforms on Wednesday. A positive outcome should be seen as the Greek debt crisis was averted and the eurozone economic growth can resume.

As the U.S. economy starts to wobble again, while the eurozone economy begins to strengthen, the EUR/USD could be heading to retest the 1.14 dollars per euro level.