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Forex outlook:
The horrid Retail Sales numbers which printed at -0.9% vs. 0.2% expected broke the will of the last standing dollar bulls and pushed the EUR/USD to all time highs above the 1.3800 level in early New York trade on Friday.
The horrid Retail Sales numbers which printed at -0.9% vs. 0.2% expected broke the will of the last standing dollar bulls and pushed the EUR/USD to all time highs above the 1.3800 level in early New York trade on Friday. The data made it crystal clear that despite the relatively buoyant employment numbers the US consumer is now in a deep funk as the Mortgage Equity Withdrawal spigot has been completely shut off providing no alternative source of income aside from the relatively stagnant wages. In fact credit card borrowing jump4ed to its highest levels in 6 months in May suggesting that the US consumer has turned to his last source of available funds. None of this of course bodes well for second half growth as spending which makes up more than 70% US GDP is likely continue to be drag on the overall economy.
Euro bulls were out in full force last week, helping to set new record highs against the US dollar and the Japanese yen, with EUR/USD peaking at 1.3813 and EUR/JPY surging to 168.85. The impetus was from an unexpected revision to first quarter GDP to 3.1 percent from a year earlier, led by business investment and surprisingly, export growth. In fact, exports were revised up to 0.8 percent from 0.3 percent, signaling that the appreciation of the euro did little to quell demand for European products. Furthermore, with expansion in the Euro-zone remaining so resilient, the European Central Bank will be more likely to enact policy tightening this year. However, markets will first need to see a pick up in price pressures before ramping up their bets on a hike to 4.25 percent, as CPI is still below the bank’s 2.0 percent ceiling.
This week the calendar offers little hope to greenback bulls unless it provides a series of upside surprises. The middle of the week should set the tone with Industrial Production on Tuesday of key importance followed by Housing starts on Wednesday. If manufacturing aided by the weak dollar continues to perform well then it will be the one bright spot in the US economy, providing a small offset to the gloomy consumer news. Furthermore, should housing data on Wednesday suggest some stabilization then we may have a reflex rally on the assumption that the worst is over. Yet these are all thin reeds of hope to base an argument for a EUR/USD top. The one strong reason may be sentiment.
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