The Eurodollar remained range-bound against the greenback yesterday subsequent to the release of poor economic data from Europe and the US. While the Eurozone trade deficit widened and missed estimates by a wide margin, US retail sales unexpectedly missed forecasts.
As anticipated, the US Fed announced a rate hike of 75 basis points at the policy meeting yesterday. However, most of the premium related to the rate hike has been priced into the greenback in the past few weeks. Therefore, the currency market did not see any substantial volatility. Overall, the EUR/USD pair remained range-bound between 1.0403 and 1.0501 in the past 24 hours.
According to the data published by Eurostat, Eurozone industrial production grew by 0.40% m-o-m in April, following a contraction of 1.40% in the previous month, but missed the 0.50% growth anticipated by economists.
Energy production increased 5.40%, while intermediate goods production recorded a rise of 0.70%. Non-durable consumer goods rose by 0.40%, while durable consumer goods increased 0.20%. However, capital goods production declined by 0.20%.
On a year-over-year basis, the Eurozone’s industrial production fell by 2% in April 2022. Production of capital goods declined 9%. Intermediate goods recorded a fall of 0.30%. Production of energy grew by 1.50%. Non-durable consumer goods recorded an increase of 4.70%, while durable consumer goods posted a rise of 5.70%.
In a separate news release, Eurostat stated that the Eurozone trade deficit widened to €31.70 billion (seasonally adjusted) in April, from €17.80 billion in the previous month, and disappointed economists who were anticipating a narrowing of the trade deficit to €14.50 billion.
On a seasonally adjusted basis, exports and imports grew by 1.50% and 7.10%, respectively. Furthermore, on a y-o-y basis, imports jumped 39.40% to €256.40 billion in April. Exports grew by 12.60% y-o-y to €223.90 billion during the same period.
Between January and April, the Eurozone posted a trade deficit of €85.10 billion, compared with a surplus of €71.70 billion in the similar period in 2021. According to the data published by the US Census Bureau, the country’s retail sales fell by 0.30% m-o-m in May, following an increase of 0.70% in the previous month, and disappointed economists who were anticipating a 0.20% rise in retail sales. The reported figure reflects the first decline in 2022.
The decline was led by a 4% drop in auto sales. Also, electronics and appliance stores posted a drop of 1.30%. Non-store retailers and furniture stores posted a decrease of 1% and 0.90%, respectively.
Excluding autos, core retail sales rose by 0.50% m-o-m in May, following an increase of 0.40% in April, but missed the 0.70% growth anticipated by economists. Excluding gas and autos, core retail sales inched higher by 0.10%.
According to the data published by the Federal Reserve Bank of New York, the US Empire State Manufacturing index, reflecting the general business conditions index, improved to -1.20 in June, from -11.60 in May, but missed the reading of 2.40 anticipated by economists.
The new orders index improved to 5.3 in June, from -8.80 in May. Likewise, the shipment index rose to 4 from -15.40. However, the unfilled orders index worsened to -4.30, from 2.60. Similarly, the delivery time index worsened to 14.50, from 20.20, reflecting an increase in the delivery period. The inventories index surged to 17.10, from 7.90.
Yesterday, following the policy meeting, the US Federal Reserve announced a 75 basis points rate hike to curb surging inflation. The reported rate hike is the steepest since 1994.
Following the announcement of the rate hike, the short-term federal funds rate increased to a range of between 1.50% and 1.75%. By the end of this year, the Fed anticipates the interest rate to reach 3.40%. The projected rate for the end of 2023 is 3.80%, a substantial change from March forecasts that saw the interest rate hitting 1.90% by the end of 2022.
The Fed also forecasts a slowdown in the economy to reflect a growth of just 1.70% this year. Also, the unemployment rate is expected to hit 3.70% in 2022 and 4.10% in 2024.
Despite the prudent measures taken to contain inflationary pressure, economists anticipate the personal consumption expenditures price index to reach 5.20% in 2022, and slow steadily to 2.20% in 2024.
The poor economic data from both the US and Europe are expected to keep the EUR/USD pair range-bound with a slight bearish (due to a 75 basis points rate hike by the US Fed) bias in the near future.
The historical price chart reveals that the EUR/USD pair is declining after facing resistance at 1.0500. The next support is expected only near 1.0350. Additionally, the EUR/USD pair is trading below its 50-day moving average, while the stochastics indicator is in the bearish zone. We are expecting the pair to stay in a downtrend in the short term.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
