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Euro US Dollar (EUR/USD) Exchange Rate Gains Ground as Eurozone Outlook Improves

Solid Eurozone Retail Sales Boost Euro US Dollar (EUR/USD) Exchange Rate

As Eurozone retail sales bettered forecast, growing 2.2% on the year in July, the Euro to US Dollar (EUR/USD) exchange rate strengthened.

This solid growth signalled that Eurozone consumers remain positive, helping to allay concerns that third quarter growth could contract.

Although the monthly figure saw a deterioration this was not enough to weigh down the Euro (EUR) this morning.

Bert Colijn, senior economist at ING, noted:

‘This was to be expected though, as sales are a volatile indicator and the reading is by no means cause for alarm. The upward trend in sales is maintained with the start to Q3 and year-on-year numbers being even slightly better than expected at 2.2% growth.’

An upward revision to many of August’s finalised Eurozone services PMIs also helped to fuel a bullish mood for EUR exchange rates, reversing some of their earlier weakness.

US Dollar (USD) Under Pressure Ahead of Trade Data

In the wake of Tuesday’s surprise contraction in the ISM manufacturing index the mood towards the US Dollar (USD) remained generally muted, meanwhile.

With the ongoing US-China trade dispute showing signs of smothering the domestic manufacturing sector confidence in the economic outlook naturally diminished.

Further losses could be in store for USD exchange rates this afternoon if July’s trade balance figure proves to be a cause for concern.

Any fresh widening of the trade deficit could fuel the White House’s protectionist impulses, increasing the risk of relations with China deteriorating once again.

However, as forecasts point towards the deficit narrowing from 55.2 billion to 53.4 billion this could offer the US Dollar a rallying point against its rivals.

Weak German Production Forecast to Limit EUR Exchange Rate Gains

Demand for the Euro may falter ahead of the weekend, though, as markets brace for the release of July’s German factory orders and industrial production figures.

If the German industrial sector fails to show signs of resilience this could boost bets that the Eurozone’s powerhouse economy may be headed for a technical recession.

Another sharp contraction in orders and production at the start of the third quarter would not bode well for the outlook of the quarterly gross domestic product.

With the European Central Bank (ECB) already biased towards monetary loosening further evidence of economic weakness within the currency union could weigh heavily on the Euro.

On the other hand, if the industrial sector demonstrates evidence of recovery the EUR/USD exchange rate could push higher, continuing to reverse the month’s losses.