The EURUSD has managed to stay above the support level at $1.0167 after a prolonged fall on Monday. The pair had started the week on a strong bearish trend falling from $1.026 to a new low at $1.0124 before clinging to its support level at $1.0167 during the Asian session today.
This week’s strong dollar had crashed EURUSD sending the price to dust again. The dollar index started the week on a strong bullish momentum pushing down the prices of all pairs matched with the forex market.
The US dollar seemed to have benefited so much from the positive readings on the US Industrial Production data which rose to 0.6% in July against the expectations of 0.3%. This affirmed the previous UoM consumers' sentiment report on the US economy as more promising and not likely to fall into any recession as many have projected.
At present, investors are eagerly awaiting the FOMC Minutes and the US retail sales report which are the two important economic data to influence the price of EURUSD today.
The FOMC Minutes to be delivered today is an essential economic data highlighting the past Fed's meeting, providing more insights into the economic and financial state of the economy which influenced the members in casting their votes on where to set the interest rate. The FOMC Minutes were released three weeks after the new Federal Funds Rate was announced.
Very often, investors pay great attention to the details of the FOMC Minutes as it helps predict the next step to expect from the Fed during their next session.
On the other hand, the retail sales report is critical economic data that measures the changes in the total value of sales made at the retail level. This report is usually seen as the primary gauge of consumer spending and is used in evaluating the overall progress in production activities within the country. Production for instance is never complete until the final consumers purchase the goods. Therefore, a reduction in consumer spendings will hinder continuous production by manufacturers.
An increase in consumer spending is known to support economic growth. Reducing consumer spending points to the high cost of products and services and could be used as a secondary measure of inflation. Hence, investors often paid great attention to the reading from this data as it often influenced the Fed's decisions during their next session.
Reduction in consumer spending due to high prices of goods and services (inflation) often pushed the Fed towards taking more aggressive actions to reduce inflation to increase consumer spending, which supports economic growth.
While the retail sales report measures the change in the total value of sales made at the retail level, the core retail sales report to be released alongside this report is known to measure the changes in the total value of sales made at the same level but excludes automobiles sales.
The reason for producing a separate retail sales report that excludes automobile sales is that the latter accounts for over 20% of the total retail sales and is hardly stable. Hence, separating the two is often necessary for analysts to understand the major areas from which major deals tend.
What impact will the FOMC Minutes have on EURUSD
The highlights from the FOMC Minutes assist investors in deciding whether to long or short the market. The Fed's tone during this meeting is often considered a sign for their following actions during the next session.
Whenever the overall position of the Committee is considered hawkish from FOMC Minutes, then investors look up to another round of aggressive interest rate hikes during their next session. This will mean a downward trend for EURUSD.
On the contrary, when the general approach from the FOMC meeting minutes is considered dovish, investors tend to withdraw from investing in the US dollar; in the hope that the Fed will slow down in its rate of an interest rate hike. This will mean an upward trend for EURUSD.
How does the Retail Sales report influence EURUSD?
The retail sales report affects the performance of EURUSD almost as the CPI report is known to affect it. The reason for this as we already mentioned is because; increased retail sales point to a reduction in the prices of goods and services which excites consumers to buy more, while a decline in retail sales report means increased prices which discourages consumers from buying more goods than they can afford.
Investors often priced into a reduction in the retail sales report to hope that the Fed will respond by increasing the interest rate. Here, a reduction in the retail sales rate means a high rate of inflation (high prices discourage consumers from buying more). This would attract more buys for the US dollar and trigger more selloffs for EURUSD.
On the contrary, an increase in the retail sales report suggests a reduction in the prices of goods and services offered to consumers (reduction in inflation rate) which causes consumers to buy more. Such an increase in the retail sales report does not attract investors, as they get disappointed that the Fed might slow down on the rate of its interest rate hike due to a reduction in the inflation rate. This will favour EURUSD and push the price higher.
Forecast for EURUSD ahead of the FOMC Minutes
EURUSD is currently at a critical support level awaiting the outcome of the FOMC Minutes and the retail sales report to determine the next direction for this pair.
A hawkish stance from FOMC Minutes could lead to more selloffs for EURUSD. In this case, we might retest the previous low at $1.0096. A break below this point could trigger more selloffs for this pair.
On the contrary, should the Minutes sound more dovish suggesting a slowdown in the rate of the Fed's aggressive interest rate hikes for the US dollar, then we can hope for a relief bounce for EURUSD with the significant resistance seen at $1.0268. A break above it will trigger the previous high at $1.0325 seen during the first week of August.
Intense volatility is expected from EURUSD today, and traders must manage their risks appropriately.