• Japanese Yen: Consumer sentiment remain low
• Euro: Strong IP data provides no support
• Pound: continues to lose ground on EUGGBP flows
• USD: Retail Sales on tap
With a very sparse calendar and little fresh geo-political news G10 currencies traced out very narrow ranges in Asian and European sessions tonight as the market looked ahead to US Retail Sales data due at 12:30 GMT. Overnight EZ data proved positive as Industrial Production increased by massive 4.3% versus 2.1% projected but the news had little impact on the price action with EURUSD languishing below the 1.4200 barrier.
One reason for the apathy of the market may have to do with the fact that German IP results were already known and therefore the upside surprise in the broader EZ number was not really news. Furthermore, the results, while impressive, are for two months back and may not accurately reflect the present day conditions for European exporters as EUIRUSD continues to float above 1.40 making their products considerably more expensive on the world stage.
Having risen so far so fast the EURUSD appears to have hit a wall at present levels and only further deterioration in US economic outlook will likely drive it higher. Having fully priced in the Sept 18th 50bp cut from the Fed, the currency markets now need additional rate reductions to drive the greenback lower.
That’s why today’s US Retail Sales data may be pivotal to the near term direction of the dollar. Consensus expectations are for a 0.3% rise versus -0.2% decline the month prior. If the report prints negative for second month in a row expectations of yet another Fed rate cut in October are sure to increase providing euro bulls with fresh fuel to propel the unit higher. If on the other hand the number prints positive and the equity markets continue their correction the greenback will get a double boost from bullish economic data and further carry trade unwind which will likely take EURUSD lower through the sales of the EURJPY cross.