EUR/USD Drops Below 1.1600 as US Dollar Strengthens on Robust Retail Sales Data
By FXStreet News
The EUR/USD currency pair experienced a notable decline on Wednesday, slipping below the significant 1.1600 level, as the United States dollar extended its recent bout of strength. The move came in response to better-than-expected US retail sales data, reinforcing expectations that the Federal Reserve may tighten monetary policy sooner than previously anticipated.
Market participants interpreted the strong consumer data as another signal of resilience in the US economy, giving further momentum to the dollar rally. Meanwhile, the euro has remained under pressure due to concerns related to the Eurozone’s economic recovery and differing central bank policy outlooks.
US Retail Sales Surprise on the Upside
The US Commerce Department released the latest retail sales figures on Wednesday, which notably exceeded market expectations.
Key highlights from the retail sales report included:
– Headline retail sales rose by 0.7% month-over-month in September, significantly above the consensus estimate of a 0.2% decline.
– Core retail sales, which strip out automobiles, also increased by 0.8%, doubling the market forecast of 0.4%.
– Year-over-year growth suggested steady consumer demand despite concerns about rising prices and supply chain disruptions.
The upbeat retail sales data reinforced projections that the American consumer remains resilient despite mounting inflationary pressures. Analysts suggest that strong consumption could prompt the Federal Reserve to move more decisively in its policy normalization process, including an accelerated tapering of asset purchases and potentially earlier interest rate hikes.
Federal Reserve Rate Hike Expectations Reignite Dollar Strength
Following the release of the robust US retail figures, financial markets responded quickly, pushing the dollar higher across the board.
– The US Dollar Index (DXY), which measures the value of the greenback against a basket of six major currencies, climbed sharply following the data, breaking through key resistance levels.
– Investor bets on a December taper announcement by the Federal Reserve increased, with many now predicting the central bank could complete the tapering process by mid-2022.
– Market pricing also showed a rising probability of an interest rate hike in the second half of 2022, potentially as early as July.
These developments fueled fresh demand for the US dollar, which in turn placed additional selling pressure on the EUR/USD pair. The euro, which had already been trading on a weaker footing, saw renewed losses, tumbling below the 1.1600 psychological threshold—a level seen by many traders as a key support.
EUR/USD Price Moves and Technical Outlook
The EUR/USD pair’s dip below 1.1600 signals a continuation of the downtrend that began earlier in the year. The pair had been steadily declining amid divergent economic trajectories and central bank policies between the US and the Eurozone.
Technical analysts noted the following key levels and patterns:
– Immediate support was seen near 1.1570, with the next critical level at 1.1530.
– On the upside, minor resistance stood at 1.1620, followed by a more meaningful barrier at 1.1660.
– Chart patterns indicated persistent downward momentum, with moving averages tilted in favor of further declines.
– The Relative Strength Index (RSI) remained in neutral territory, suggesting there is still room for additional selling without the pair entering oversold territory.
The EUR/USD pair’s breakdown below the 1.1600 level is being seen as a bearish development by many traders, especially amid growing confidence in the US economic outlook relative to that of the Eurozone.
Eurozone Concerns Weigh on EUR
While the US economy has shown remarkable resilience, the same cannot be said for the Eurozone. The latest Eurozone data continues to paint a mixed picture, and inflationary pressures remain a double-edged sword for the European Central Bank (ECB).
Key challenges facing the Eurozone include:
– Sluggish economic growth compared to the US, with several countries reporting deceleration in industrial output
Read more on EUR/USD trading.