Thu, Mar 23, 2023 @ 18:42 GMT
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Euro Under Pressure, Retail Sales Next

EUR/USD has edged lower in the Tuesday session. Currently, the pair is trading at 1.0660. On the release front, the eurozone will release retail sales, which is forecast to post a gain of 0.5%, after three straight declines. ECB President Mario Draghi will speak in Frankfurt, as the ECB launches its new EUR 50 banknote. In the US, today’s highlight is trade balance, which the trade deficit expected to narrow to $46.0 billion. On Wednesday, all eyes will be on the Federal Reserve, which will publish the minutes of its March policy meeting. As well, the US will release ADP Employment Change and ISM Non-Manufacturing PMI.

The euro remains under pressure, as the currency hovers close to 3-week lows. EUR/USD dropped 1.9 percent last week, marking its worst weekly decline since November 2016. Soft inflation numbers late in the week disappointed the markets and soured sentiment on the continental currency. German Preliminary CPI posted a weak gain of 0.2%, short of the forecast of 0.4%. This was followed by Eurozone Flash CPI Estimate, which slipped to 1.5%, missing the forecast of 1.8%. At the same time, Germany, the largest economy in Europe, continues to post solid numbers. Employment and retail sales data in February beat expectations, as the German economy continues to expand at a healthy clip in 2017.

The US economy hasn’t missed a beat in 2017, and the markets are expecting strong data for the first quarter. The CB consumer confidence report soared to 125.6 in March, and strong consumer confidence levels should translate into increased consumer spending, a key component of economic growth. GDP for the fourth quarter was revised to 2.1%, up from 1.9% in the previous GDP report. With the economy headed in the right direction, the discussions around the monetary policy tables are not whether the Fed will raise rates, but will it press the rate trigger two or three more times in 2017. The markets will be paying close attention to the minutes of the March meeting, when the Fed raised rates by a quarter-point, to a range of 0.75-1.00%. Any hints about the timing of the next hike, as well as the tone of the minutes are factors which could move the currency markets on Wednesday. The markets considered the rate statement overly cautious, and this sentiment sent the US dollar broadly lower. If the reaction to the minutes is one of disappointment, the dollar could again head downwards.

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