Euro Shaken by Weak Retail Spending

[B]Talking Points[/B]
• Japanese Yen: Unemployment unexpectedly rises
• Euro: Drops through 1.4400 as retail spending contracts
• Pound: takes out the 2.06 figure
• US Dollar: Consumer Confidence on tap

Euro dropped below the 1.4400 in early European trade today dragged by weak retail spending numbers which slipped below the key 50 boom/bust line for the first time in three months. EZ Retail PMI data printed at 47.9 against the prior reading of 50.5 suggesting that for despite improving labor markets, organic demand in the 13 member region remain tepid at best.
On the positive side, German unemployment fell more than expected declining another -40K versus -30k projected. The unemployment rate remained steady at 8.7%. Although the labor markets continue to make progress, many analysts are concerned that new jobs may be of the low quality, low paying variety which generate little additional income and provide minimal increase in purchasing power. Certainly an argument can be made that growth in EZ GDP, has not translated into any meaningful; increase in consumer spending so far and as long as that dynamic continues the ECB will most likely choose to remain neutral for fear of further depressing the delicate consumer recovery.

Although the weak Retail PMI numbers put a crimp in EURUSD rally for the near term, the data will son be forgotten by the market as attention turns to the FOMC meeting tomorrow. One other possible reason for euro’s weakness, may have been a report by Wall Street Journal’s Greg IP, that the US monetary policy makers are only considering two choices -25bp cut or none. With global capital markets universally convinced that the Fed will cut by 25bp, Mr. Ip’s report pours destroys any euro longs hope of a possible 50bp cut at this meeting. As we’ve noted several times this week, a 25bp cut may actually prove dollar positive with the unit possibly staging a temporary relief rally.