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WORLD MARKETS: EURUSD – A further 2014 low

05 August, 2014

By Jameel Ahmad, Chief Market Analyst at FXTM

The EURUSD moved back down south on Tuesday, recording another fresh 2014 low (1.3357) in the process. The financial markets reacted unfavorably to the announcement that June’s EU Retail Sales narrowly missed expectations; Retail Sales increased by 0.4%, slightly below the 0.5% expected.

After analyzing the Retail Sales data in more detail, the market reaction is slightly surprising. On an annualised basis, Retail Sales increased by 2.4%, double the consensus.

However, the 60 pip EURUSD decline goes some distance towards shedding light on the currently weak EU economic sentiment. It could even be suggested that the economic sentiment became even weaker last week following the announcement that during July, EU CPI (inflation) unexpectedly declined to its lowest level in five years. Perhaps even more disappointingly, indications of deflation have already emerged in Spain, with Spanish CPI contracting by an annualised 0.3%.

There remains at least two upcoming major event risks to the EURUSD valuation this week. The latest European Central Bank (ECB) interest rate decision is announced on Thursday. This is shortly followed by ECB President Mario Draghi’s press conference. In regards to the former, no action is currently expected from the ECB. Despite the negative CPI headlines last week, it does appear that the central bank is willing to offer time for the recently implemented stimulus measures to take effect before considering the possibility of more stimulus.

Draghi’s press conference seems the more likely event to place the EURUSD valuation at risk. The ECB President will probably be heavily quizzed on his thoughts behind the deteriorating EU CPI data and whether the ECB will consider introducing quantitative easing anytime soon. Draghi has made no secret of late that he considers the EURUSD is overvalued (despite the pair declining by over 500 pips since May) and it would not be a surprise if he tries to talk down the EU currency this Thursday.

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