The EUR/USD closed Wednesday below the 1.3000 mark at 1.2960 after an attempt at recovery from a fresh 3-month low of 1.2920. Today's economic data highlighted the divergences between the U.S. and the eurozone economies, and investors behaved in accordance. Good U.S. data meant higher stocks and a higher dollar.
The retail sales in the U.S. rose 1.1% throughout February, well above the 0.5% increase expected by the market, and the highest since September 2012. Ex-auto data surprised at 1.0%, beating 0.5% consensus, and saw the January figure being revised higher, from 0.2% to 0.4%.
The EUR/USD attempted to recover from 1.2820, however, the pair's bounce was capped by the 1.2970 area so far, and the pair is currently trading around 1.2960, still down 0.5% on the day. Flemming Nielsen, Senior Analyst at Danske Bank, remarked that sales could have two opposite effects on the euro.
"Strong U.S. numbers are overall expected to support risk appetite, which would normally tend to push EUR/USD higher. However, with the long streak of improving U.S. data, the market has increasingly turned its focus on the timing of a Fed 'exit'. Hence, strong U.S. data might fuel further expectations that the Fed will start to look at this and thus a high probability that strong U.S. data would lead to a stronger dollar going forward," Nielsen concluded.
Are The Bears Ready?
With the EUR/USD hitting 3-month lows at 1.2920, the forecast could be seen as negative. In the one day chart, CCI, MACD and Momentum are bearish, while the Stochastic is bullish. However, as indicators reach oversold levels, a bounce could not be dismissed, with 1.3080 (this week's top of range) as a key area to regain in order to ease the immediate pressure.
On the downside, the 1.2900/08 area (psychological level/ Fib 76.4% of 1.2660/1.3710) stands as the next bearish target ahead of 1.2880 (congestion area). On the upside, only above the 1.3100/35 area, where the psychological hurdle, the 100-day SMA and last week's highs converge, would the technical outlook improve.
Derek Halpenny of the Bank of Tokyo Mitsubishi UFJ notes that impressive U.S. data is helping the dollar. "The IDB/TIPP Consumer Confidence fell sharply last week and gasoline prices advanced 16% from the middle of January to the middle of February, raising the risks that consumer spending takes a hit. The retail sales consensus excluding gasoline and autos is a modest 0.2% m/m increase."
But on the other hand, he said that the market "should prepare for weaker U.S. data and for the possibility of some dollar reversal after recent strong gains."