The Eurodollar started declining against the greenback in the Asian session yesterday following the report of unexpected contraction in German retail sales in September. However, the lower-than-anticipated US final manufacturing PMI and disappointing construction data enabled the Eurodollar to gain ground against the US dollar at the end of the day. Overall, the EUR/USD rallied from a low of 1.1548 to a high of 1.1610.
As per data published by Destatis, German retail sales shrank 2.50% m-o-m in September, following a growth of 1.20% in the prior month and missed the 0.50% expansion anticipated by economists.
Non-food sales fell 5.10%, mainly due to clothing, textiles, leather goods, and shoes. On-line trade fell by 2%. In the meantime, sales of food, tobacco, and beverages products increased by 0.90%.
On a y-o-y basis, the country’s retail sales fell by 0.90% in September 2021. However, compared with pre-pandemic February 2020, the retail turnover posted an increase of 3.70% in September 2021.
Final data published by the IHS Markit indicated that the US manufacturing PMI (purchasing managers’ index) eased to 58.40 in October, from 60.70 in the prior month. Economists did not anticipate any change in the flash estimates, which pegs the manufacturing PMI at 59.20.
The recent improvement in the health of the US manufacturing sector was robust, in spite of remaining weak for ten months. The overall improvement in manufacturing activity was driven by a rise in new orders. Companies reported a robust demand environment. However, some of the firms highlighted an impact on demand due to a shortage of material.
The rate of fresh order growth remained the slowest for ten months. Fresh export sales increased only fractionally as overseas demand was also affected by the ripple effect of unstable supply. Reflecting capacity issues, in October, production growth declined to the lowest level since July 2020. Raw material and labor shortages were often mentioned as affecting the economic rebound.
According to the Institute for Supply Management, manufacturing PMI inched down to 60.80 in October, from 61.10 in the earlier month, but surpassed the reading of 60.40 anticipated by economists. The reported figure reflects an expansion of the US economy for the 17th consecutive month, following a contraction in April 2020.
The new orders index declined 6.90% m-o-m to 59.80 in October. The production index fell to 59.30 in October, from 59.40 in September. Likewise, the backlog of orders index dropped 1.20% to 63.60 in October. On the contrary, the employment index rose by 1.80% to 52. Similarly, the supplier deliveries index grew 2.20% to 75.60% in September. Also, the inventories index increased 1.40% to 57%.
According to the Census Bureau, construction spending declined 0.50% m-o-m in September, following an increase of 0.10% in the earlier month and disappointed economists who were anticipating an increase in the construction spending by 0.40%. In value terms, construction spending fell to $1.574 trillion.
Spending on private construction declined 0.50% in September, following a drop of 0.30% in August. Specifically, manufacturing and power posted a drop of 1.60% and 1.20%, respectively.
Public construction spending fell by 0.70% in September, compared with a decrease of 1.20% in August.
The weak economic data from both the US and Europe is expected to keep the EUR/USD pair range-bound with slight bearish bias (Euro is expected to remain slightly weak as the US Fed is anticipated to announce tapering in the upcoming policy meeting on November 3) in the short-term.
The historical price chart indicates that the EUR/USD pair has failed to break the resistance level of 1.1610. The next minor support is seen at 1.1540. Additionally, the CCI indicator is declining. Therefore, we are anticipating the currency pair to remain in a downtrend in the days ahead.
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