Sure enough, today the euro has added some strength against the U.S. dollar. The EUR/USD currency pair is currently up 0.04% at 1.1725. This movement comes on the heels of rather weak retail sales numbers out of Germany. On a year-on-year comparison, in May the country was up by 1.6%, but the month-over-month numbers were down 1.6%. Analysts had anticipated much stronger numbers. This means, for example, that if they predicted the EUR/USD exchange rate would go up by 0.5%, we considered that correct.
In the longer-term picture, the EUR/USD’s fall is a sign of continuing economic malaise in the Eurozone. The currency pair saw solid demand below the important support level of 1.1700. Its inability to deliver on what the market had been anticipating is troubling for future IPOs and investor sentiment. This article takes a closer look at these trends and what they mean for retail sales and foreign exchange trading.
Retail Sales Performance
Germany’s retail sales numbers show an extremely mixed, volatile economy. The 1.6% increase from last year in May is a further testament to how resilient consumers are and how much they’re willing to spend. This trend is generally viewed in a rosy way. Overall, the month-over-month decline of 1.6% is a sign of things to come in terms of volatility and uncertainty in consumer habits.
Previous releases showed that retail sales fell 0.6% in April. This unexpected decline sparked questions about whether consumer demand can sustain in the face of escalating prices and broad economic challenges. Annual growth remains robust, but recent monthly decreases are alarming. This discrepancy could be an indication of seasonal swings, or an effect of the recent inflation erosion on consumer purchasing power.
The U.S. retail sector is the backbone of an inclusive, vibrant economy. It’s a proxy for consumer confidence and, ultimately, their willingness to spend based on that confidence. After this good news, analysts will be eager to track upcoming months’ data for indications of recovery or continued drop off.
Currency Exchange Rates
Even the currency market is reacting to these economic indicators with nervous jittery moves. EUR/USD The EUR/USD minor cross was unchanged at 1.1725, with underlying bids back above the 1.1700 level. This stability is noteworthy in that it defies a market expectation that was looking for a more robust upward move of 0.5%.
Interestingly enough, investors are keeping a very close eye on volatility in other major currencies. The British pound (GBP/USD=X) recorded a negligible gain of just 0.12%, while the Japanese yen (JPY/USD=X) rose by 0.32%. Moreover, the Canadian dollar (CAD) appreciated by 0.23%, and the Australian dollar (AUD) adjusted up by 0.17%. The local currency, the New Zealand dollar (NZD), roared back by an impressive 0.47%. The only currency in the green today, by a whisker of 0.04%, is the Swiss franc (CHF).
The heat map illustrating percentage changes among these currencies highlights how interconnected global markets can impact exchange rates, further complicating predictions for future movements in EUR/USD.
Market Outlook
As traders factor in the latest developments, forecasts for EUR/USD are still bearish but not without a bullish bias according to some forecasters. The euro’s resilience, above 1.1700 so far still daily, indicates very solid support underneath. A potentially noisy print from the all important retail sales data might trigger some upside risk to volatility in the very near term.
It is imperative for all market participants to be aware as they go through this rulemaking. Further, Germany’s retail sector is sending signals that are downright contradictory. This would bring about a change in the landscape of short-term trading strategies and force a reassessment of long-term euro forecasts versus other major currencies.