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Euro US Dollar Exchange Rate Under Pressure After Disappointing Eurozone Retail Figures

The persistent dovishness of the ECB and disappointing Eurozone retail data saw the Euro US Dollar exchange rate trending lower.

  • Unexpected contraction in December retail sales dented Euro – Consumer confidence appeared weaker
  • US Dollar edged higher ahead of non-farm payrolls – Investors anticipated signs of stronger labour market
  • German factory orders forecast to recover – EUR USD exchange rate could rally on robust manufacturing data
  • Political developments to dominate ‘Greenback’ outlook – Market sentiment likely to remain jittery in coming week

Hopes of robust jobs data returned the US Dollar to an uptrend, meanwhile, in spite of the weakness seen in response to the Fed’s January policy meeting.

EUR USD Exchange Rate Trended Lower ahead of Non-Farm Payrolls Data

Demand for the Euro (EUR) slumped on Friday morning in the wake of weaker-than-expected Eurozone retail sales for December. Rather than showing a modest recovery on the month sales instead weakened a further -0.3%, with the Christmas period failing to offer any particular boost to consumer spending. This suggestion of softer domestic confidence did not benefit the single currency, particularly amidst rumours of a growing political divide within the Greek government.

Ahead of January’s non-farm payrolls report the US Dollar (USD) was trending tentatively higher, with investors hopeful that the data will point towards continued strength within the labour market. Despite the Federal Reserve’s failure to offer a guide as to the likely timing of its next interest rate hike a strong showing here could boost confidence in the ‘Greenback’. As analysts at Goldman Sachs noted:

‘We forecast that nonfarm payroll employment increased 200k in January, after an increase of 156k in December and 204k in November. Labour market indicators generally strengthened last month, with a drop in jobless claims between the survey periods to four-decade-lows and further improvement in the employment components of many service-sector and manufacturing surveys.’

However, if wage growth proves disappointing and domestic political developments continue to provoke jitters the Euro US Dollar (EUR USD) exchange rate could regain some ground.

Euro (EUR) Rally Forecast on German Factory Orders Rebound

Monday’s German factory orders figures could provoke fresh volatility for the EUR USD exchange rate. Following November’s sharp contraction of -2.5% investors will be hoping to see at least a moderate rebound in growth at the end of 2016. If the figure proves encouraging the Euro could rally, with confidence likely to be boosted by any signs of strength within the Eurozone’s powerhouse economy. A more resilient German economy would offer support to the softened single currency, even if concerns surrounding the increasingly protectionist rhetoric of the US mount further.

Also in focus at the start of the week will be the latest Eurozone Retail PMI and the Sentix investor confidence index. An improvement in either of these measures would give the EUR USD exchange rate fresh upside momentum, underlining the strength of the domestic economy and increasing the case for the European Central Bank (ECB) to consider tapering its quantitative easing program.

Narrowed US Trade Deficit Could Boost US Dollar (USD) Demand

Political developments are likely to continue to dominate the outlook of the ‘Greenback’ for the foreseeable future, with any more controversial moves from the new administration likely to weigh on market sentiment. Even so, if signs of increasing infrastructure spending and fiscal stimulus start to materialise this could encourage greater confidence in the US Dollar, in the short term at least.

In spite of the less hawkish nature of the recent Fed policy meeting any bullish US ecostats are likely to boost the market odds of a more imminent monetary tightening move. December’s trade deficit is predicted to have narrowed slightly on the month, which could add to the robust picture of the world’s largest economy. Even so, as consumer credit is expected to have dipped, implying weaker confidence, the EUR USD exchange rate may be able to regain its footing in the early week.

Current Interbank EUR, USD Exchange Rates

At the time of writing, the Euro US Dollar (EUR USD) exchange rate was trending lower at 1.07, while the US Dollar Euro (USD EUR) exchange rate was making gains in the region of 0.80.