Euro shrugs off soft German retail sales

The euro has started the week in positive territory. Currently, EUR/USD is trading at 1.1585, up 0.21%.

Euro slides on US rally

The euro took market participants on a roller-coaster ride late last week. On Thursday, the euro rose 0.65% as the markets were not buying what Christine Lagarde was selling. In her follow-up remarks to the ECB policy meeting, Lagarde tried to dampen expectations of a rate hike in 2023 and added that that inflation would last longer than expected, although she expected it to decline over 2023. However, instead of her comments having a calming effect, the markets jumped all over the inflation comments as speculation soared that the ECB would have to raise rates before the 2023 timeline, sending the euro sharply higher.

Germany, as the largest economy in the eurozone, is a reliable bellwether for the bloc. German Retail Sales was dismal in September, coming in at -2.5%. This marked its second decline in just three months, and the soft reading could reflect weak consumer spending across the eurozone. Last week, France reported a decline of 0.2% in Retail Sales. Consumer spending is a key driver of the economy, and weak consumer spending could greatly hamper the eurozone’s recovery.

The US dollar rebounded in spectacular fashion on Friday, as EUR/USD fell once percent and dropped as low as 1.1535. This time it was market expectations for a rate hike by the Federal Reserve which sent the dollar flying high. The dollar received a boost from month-end flows and a strong reading from the US employment cost index, which rose 1.30% in Q3 (Q0Q). This was its strongest gain since 1993. With the FOMC holding its policy meeting on Wednesday, concerns about faster tightening are rising, which could translate into gains for the US dollar.

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EUR/USD Technical

• There are resistance lines at 1.1658 and 1.1754
• 1.1520 is providing support, followed by 1.1440

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