EUR/USD Awaiting EU Court and US Retail Sales

The American economy continues its steady march toward sustained growth. Last week’s nonfarm payrolls data that showed 252,000 new jobs were created in December was overshadowed by disappointing low wage growth. That sent shockwaves throughout the FX market.

On one hand, the jobs digit validated the momentum built up by the U.S. economy especially after the strong gross domestic product (GDP) data published before Christmas. On the other hand, the lack of wage increases gives the Federal Reserve the latitude to exercise monetary policy patience and hold off on instigating an interest rate hike until the latter half of the year. The U.S. retail sales numbers due to be published this week will shed some light on the state of American consumers and their willingness to boost internal demand. Though many analysts expect retail sales cooled last month, American consumer confidence is at its strongest since 2007, according to the Thomson Reuters/University of Michigan’s final December reading of consumer sentiment. Regardless, the retail sales data will prove to be a key component of fourth quarter GDP.

In the third quarter of 2014, the GDP of the United States grew by 5.0 percent, beating earlier estimates and analysts’ expectations. More impressive was the fact that it was higher than the 3.9 percent of the second quarter that signaled a turning of the tide after a dismal first quarter that was affected by harsh winter conditions.

The retail figures fell in mid-October, triggering a panic selloff that eventually was reversed, but it made for a shaky USD trading week as the U.S. growth narrative was questioned. Eventually the EUR/USD decline continued as European inflation continues to fall with no consensus in sight from influential nations.

The December retail sales are expected to rise 0.2 percent following a 0.6 percent increase in November. The lower price of energy left consumers with more spending money in their pockets, and retailers were the direct beneficiaries going into the holiday season.

Meanwhile, the eurozone is beset with an ever-growing divide between Germany and the anti-austerity members of the European Union.

This week, there are fewer market-moving events scheduled, thus traders will be watching for confirmation on U.S. stability, and the various European political dramas playing out in Greece, Russia-Ukraine, and France.

The EUR/USD has lost over 200 pips in 2015. It would be even lower if not for the Fed’s patient stance, as the European Central Bank (ECB) stepped up its rhetoric in the war of words with Germany over quantitative easing. ECB chief Mario Draghi’s hands may be tied, but rumor has it his hands hold €500 million earmarked for a bond-buying program.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza