EUR/USD: Surges on Germany’s Strong Factory Orders Amid Flat Euro Zone Retail Sales

Highlights

• EUR/USD rises on Germany’s strong factory orders.
• Euro Zone retail sales remain flat, missing expectations.
• Investors await labor market data to influence Federal Reserve’s interest rate policies.

Overview

The EUR/USD is trading higher on Thursday, supported by a notable surge in Germany’s Factory Orders. This positive momentum remained unaffected by flat retail sales in the Euro Zone during May and lower annual data. Even another increase in U.S. Treasury yields failed to dampen the market’s enthusiasm.

Euro Zone Retail Sales Remain Stagnant

Eurostat reported that retail sales in the Euro Zone remained unchanged in May, as higher spending on non-food items offset declines in food and automotive fuel sales. Retail sales volumes across the 20 nations sharing the euro currency showed no growth compared to April and a 2.9% year-on-year decrease. These figures fell short of economists’ expectations, who had predicted a 0.2% monthly rise and a 2.7% decline from the previous year.

The sluggish consumption can be attributed to falling real incomes, with households allocating a larger portion of their earnings towards costly energy expenses, credit, and mortgage repayments. Consequently, demand for other goods has eroded, leading to consecutive monthly declines in retail sales since February. Additionally, due to higher interest rates and a cautious economic climate, households have increased their savings, further suppressing demand.

Germany’s Factory Orders Surge

However, amidst these retail sales concerns, Germany’s factory orders delivered a much-needed boost. In May, demand surged by 6.4% compared to April, surpassing economists’ expectations of a 1% gain. The rebound in orders was observed both domestically and abroad, indicating a potential easing of the manufacturing slump in Europe’s largest economy. Although overall orders are still down 4.3% from the previous year, the automotive industry experienced the most significant growth, with orders for “other transport equipment” soaring by 137%.

While the German manufacturing sector continues to face challenges, the services sector remains resilient, offsetting the industrial downturn. Although the outlook for manufacturing remains uncertain, the German economy is currently more likely to stagnate rather than shrink.

US Labor Market Data on Tap

Investors are eagerly awaiting key data releases, particularly regarding the labor market, which are expected to shed light on the overall state of the economy. Reports such as ADP’s employment report, JOLTs job openings, and weekly initial jobless claims figures will be released on Thursday, followed by June’s jobs report on Friday. These data points are expected to influence the Federal Reserve’s future interest rate policies, especially regarding the pace of rate hikes. Fed Chairman Jerome Powell recently emphasized the importance of a strong labor market and did not rule out consecutive rate hikes in upcoming meetings.

Short-Term Forecast:  Boosted by German Factory Order Optimism

In conclusion, the EUR/USD benefited from Germany’s impressive factory orders, disregarding stagnant retail sales in the Euro Zone. As investors anticipate crucial economic data, the labor market figures will likely shape the Federal Reserve’s decision-making on interest rates going forward.

Technical Analysis

 

The current price shows a positive relationship with the previous 4-hour close, indicating potential upward momentum. However, overall EUR/USD sentiment appears relatively neutral as the currency pair trades at 1.0897, slightly above the 200-4H moving average but below the 50-4H moving average.  The 14-4H RSI reading of 52.85 falls within the neutral zone.

The market is experiencing consolidation between the main support area of 1.0808-1.0849 and the main resistance area of 1.1006-1.1074. Traders await a clear breakout or further confirmation to determine the market’s direction.

The 50-4H moving average at 1.0901 appears to be the most likely place for an upside breakout. Overall, the sentiment remains cautious, with potential bullish indications but resistance at key levels.