**U.S. Dollar Pulls Back After Disappointing Retail Sales: Analysis of EUR/USD, GBP/USD, USD/CAD, and USD/JPY Trends**
*Adapted and expanded from an article originally written by James Hyerczyk for FX Empire.*
The U.S. dollar faced a retreat in Monday’s trading session after retail sales data for May missed expectations, injecting fresh uncertainty into the outlook for consumer spending and the broader U.S. economy. This slowdown in retail demand complicates the Federal Reserve’s already cautious stance on interest rates and pushes investors to reshuffle their positions across major currency pairs. This article examines the impact of the soft retail sales data on the forex market and provides a comprehensive analysis of key currency pairs including EUR/USD, GBP/USD, USD/CAD, and USD/JPY.
## U.S. Retail Sales Miss Forecasts
On Monday, the U.S. Census Bureau reported that retail sales rose just 0.1 percent in May 2024, significantly below economists’ expectations of a 0.3 percent increase. April’s figures were revised downward to show a 0.2 percent decline instead of the originally reported flat reading. When excluding auto sales, the figure revealed a flat increase of 0.0 percent, highlighting weaker demand among American consumers.
### Key Highlights from the Retail Sales Report:
– Total retail sales rose only 0.1 percent month-over-month.
– April sales were revised down from 0.0 percent to -0.2 percent.
– Core retail sales (excluding autos, gasoline, building materials, and food services) declined 0.1 percent in May.
– Annual retail sales growth stands at 2.3 percent, a slowdown from the previous year.
These figures suggest consumers may be becoming more cautious due to elevated interest rates, persistent inflationary pressures, and concerns about economic growth in the second half of 2024.
## Market Response: Investors Cut Dollar Long Positions
The weaker-than-expected data prompted a re-evaluation of the Federal Reserve’s monetary policy outlook. Investors scaled back expectations for aggressive rate hikes or prolonged higher rates. The U.S. Dollar Index (DXY), which tracks the greenback against a basket of six major currencies, dropped about 0.3 percent following the retail sales release to hover near 105.25.
### Summary of Market Movements:
– The U.S. Dollar Index dipped to 105.25 from 105.60 before the retail numbers.
– Treasury yields edged slightly lower, with the 10-year yield falling to 4.26 percent.
– U.S. equity markets were mixed on the news, with the Nasdaq showing strength while the Dow struggled.
Let’s dive deeper into how this news has impacted individual forex pairs.
## EUR/USD: Euro Firms as Dollar Retreats
The euro gained strength against the U.S. dollar in reaction to the retail sales disappointment, with EUR/USD climbing above the 1.0720 level during Monday’s trading session. This marks a notable rebound from recent lows near 1.0660, driven largely by dollar weakness rather than euro strength.
### Technical Overview for EUR/USD:
– Support: 1.0660 remains a pivotal support level.
– Resistance: The pair faces resistance near the 1.0750 psychological level and again at 1.0800.
– Momentum: Relative Strength Index (RSI) on the 4-hour chart is showing bullish momentum, but overbought conditions could cause short-term pullbacks.
However, traders remain cautious ahead of the upcoming Eurozone inflation data and PMI numbers due this week. The ECB’s recent dovish surprise—the central bank cut rates in June despite sticky inflation—continues to cap upside potential for the euro.
### Key Eurozone Factors to Watch:
– Eurozone CPI flash estimate (due Friday)
– German manufacturing PMI (due Friday)
– European Central Bank commentary on future rate path
## GBP/USD: Pound Gains Amid Dollar Weakness
Read more on USD/CAD trading.