The Euro Struggles as German Retail Sales Decline and Eurozone HICP Deflates
- EUR/USD gives up entire intraday gains as German Retail Sales decline and Eurozone HICP deflates on month.
- Investors await the preliminary Eurozone HICP data for November, which will influence the ECB’s likely interest rate cut size prospects.
- ECB’s Villeroy keeps hopes of an outsize interest rate cut in December on the table.
In recent trading, EUR/USD has surrendered all its gains after reaching a weekly high near 1.0580 during the North American session on Friday. The major currency pair is facing a decline due to the flash Eurozone Harmonized Index of Consumer Prices (HICP) data for November, which showed a deflation in price pressures on a month-on-month basis. Additionally, the US Dollar (USD) has rebounded, adding to the downward pressure on the Euro.
Factors Affecting the Euro’s Performance
- The monthly headline and core HICP deflated by 0.3% and 0.6%, respectively, indicating the potential for a larger interest rate cut of 50 basis points (bps) by the European Central Bank (ECB) in the upcoming December meeting.
- Weak German Retail Sales data for October, with a contraction of 1.5% month-on-month, further supports the prospects of an interest rate cut by the ECB.
- On a year-on-year basis, headline and core HICP accelerated to 2.3% and 2.8%, as expected.
ECB’s Stance on Interest Rates
ECB Governing Council member François Villeroy de Galhau has hinted at the possibility of an outsize interest rate cut in December, keeping the markets on edge. Traders are now expecting a rate cut of at least 25 bps in the upcoming meeting, with further cuts anticipated in 2025.
Daily Digest: Market Update on EUR/USD
- EUR/USD is under pressure as the US Dollar (USD) rebounds, pushing the currency pair below 1.0600. The US Dollar Index (DXY) has recovered from recent lows, influenced by market expectations around the new Treasury Secretary’s economic agenda.
- Market experts anticipate caution from the Federal Reserve (Fed) regarding interest rate cuts, as the core Personal Consumption Expenditures Price Index (PCE) data accelerated in October.
- Looking ahead, volatility in the US Dollar is expected to continue, with a slew of economic data releases scheduled for the upcoming week.
Technical Analysis: EUR/USD
Despite a temporary recovery, EUR/USD is now edging lower from the 1.0580 level. The bearish outlook remains intact, supported by declining short-to-long-term day EMAs. The Relative Strength Index (RSI) suggests a fading bearish momentum, but the overall trend remains downward.
Key support for Euro bulls lies at the November 22 low of 1.0330, while resistance is seen near the 50-day EMA at 1.0747.
Economic Indicator: Core Harmonized Index of Consumer Prices (MoM)
The Core Harmonized Index of Consumer Prices (HICP) measures changes in prices of goods and services in the Eurozone. The MoM figure compares prices in the reference month to the previous month, excluding volatile components like food and energy. The Core HICP is a key indicator for inflation and purchasing trends in the region.
Last release: Fri Nov 29, 2024 10:00 (Prel)
Frequency: Monthly
Actual: -0.6%
Previous: 0.2%
For readers new to finance, the weakening Euro and strengthening US Dollar impact various aspects of the global economy. A stronger Dollar makes US exports more expensive, affecting international trade. Additionally, central bank decisions, like potential interest rate cuts by the ECB and the Fed, can influence borrowing costs for businesses and individuals, impacting spending and investment decisions. Understanding these dynamics can help individuals make informed financial choices and plan for their future amidst changing market conditions.