Friday, February 14, 2020

Will today’s economic data releases in the EU and US favour the greenback?

Tags
  • Dollar
  • Euro
  • US Retail Sales

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Analysts’ Pick: Will today’s economic data releases in the EU and US favour the greenback?

  • US retail sales for January and consumer sentiment for February are likely skewed to favour the greenback
  • A sharp decline in industrial production in December may signal that the German economy did not expand in Q4
  • The outlook for EUR/USD is skewed to the downside, with a downside potential of 0.27%

Q4 GDPs for Eurozone (6pm GMT +8) and Germany (3pm GMT +8) are set to be released today, coupled with January's retail sales (9.30pm GMT +8) and February's consumer sentiment index (11pm GMT +8) in the US. We expect EUR/USD to retreat towards 1.0809's level as a result of today's economic data releases.

Germany's GDP for Q4 2019 is likely to disappoint after posting a large industrial contraction in December. Economists expect a growth rate of 0.1% from Q3, but GDP growth is likely to be flat at 0% instead. This is due to PMI data in Germany indicating that sectors are still in contraction despite recovering (Composite and Manufacturing PMI was mostly below 50 through Q4 2019). Germany's disappointing GDP is then likely to weigh on the Eurozone's Q4 GDP, which consequently may put greater downward pressure on the euro.

A sharp decline in German industrial production in December will likely weigh on Germany's Q4’s GDP growth

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January's headline retail sales growth looks likely to be mostly in line with December's growth rate thanks to declining gas prices supporting a slowing growth in consumer income. But with improving consumer sentiment and rising auto sales in January, headline retail sales may have some room to beat expectations. Retail sales excluding auto and gas may beat expectations as well, although will likely be closer to economists' forecast of 0.2% instead of December's 0.5% growth thanks to a possible slowdown in electronic sales growth.

Strong consumer sentiment and lower retail gas prices imply that consumers may have spent more in January despite moderate income growth

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Expect downward pressure from the coronavirus to dampen consumer sentiment. The ongoing coronavirus outbreak that has infected over 60,000 people around the globe (with most cases concentrated in China) and is likely to weigh on consumer sentiment. But lower gas prices and jobless claims signal that the index is likely to continue to remain at higher levels. We expect the University of Michigan's index to range around 99.0 to 99.4, declining from 99.8 in January.

New unemployment claims were lower than expected in the first week of February

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Better-than-expected retail sales data and relatively strong consumer sentiment is likely to lift the greenback later today. With euro expected to continue to weaken thanks to a possible contraction in the German economy, EUR/USD may fall towards 1.0809's level, or a downside potential of 0.27%.

 

Scenario

Effect on EUR/USD

1

Germany GDP miss expectations; US retail sales beats expectations and consumer sentiment continues to range above 99.0

Falls towards 1.0809’s level

2

Germany GDP within expectations; US retail sales beats expectations and consumer sentiment continues to range above 99

Fall’s towards 1.0820’s level

3

Germany GDP within expectations; US retail sales miss expectations and consumer sentiment continues to range above 99

Range between 1.0835 and 1.0865

*Source: ADSS

Technical Analysis:

EUR/USD

EUR/USD is on a downtrend and looks set to continue as the bears push to break the 1.0835 support level. MACD and RSI confirms that the EUR/USD is on a downtrend and may be oversold. The outlook for the euro is still weak, implying that the euro has more room to fall. Bears are also taking advantage of the stronger demand for dollar as a result of the extended holiday in China thanks to the coronavirus outbreak. As some factories in China still remain closed, the German economy (the largest economy in Europe; with China as its third largest trading partner) will likely suffer as well. But if any of today’s economic data favours the euro, then the bull may gain enough steam to push the euro dollar back above 1.0854, although it seems more probable that economic data releases today will favour the dollar, in which case EUR/USD is likely to fall towards 1.0809’s level.

Support: 1.0835 / 1.0820 / 1.0800

Resistance: 1.0865 / 1.0889 / 1.0922

EUR/USD Chart (H4)

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