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The vast majority of retail client accounts lose money when trading CFDs.
Important Notice - Fraud awareness
Important Notice - Scam alert
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts lose money when trading CFDs. You should consider whether you can afford to take the high risk of losing your money.
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Important Notice - Scam alert
The vast majority of retail investor accounts lose money when trading CFDs / Spread betting with this provider.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail investor accounts lose money when trading CFDs / Spread betting with this provider. You should consider whether you understand how CFDs / Spread betting work and whether you can afford to take the high risk of losing your money.
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EURUSD stays above $1.0167 as market waits for FOMC & Retail Sales report

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.

Last Updated: 17/08/2022

This market commentary and analysis has been prepared for ATFX by a third party for general information purposes only. Any view expressed does not constitute a personal recommendation or solicitation to buy or sell as it does not take into account your personal circumstances or objectives, and should therefore not be interpreted as financial, investment or other advice, or relied upon as such. You should therefore seek independent advice before making any investment decisions. This information has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. We aim to establish and maintain and operate effective organisational and administrative arrangements with a view to taking all reasonable steps to prevent conflicts of interest from constituting or giving rise to a material risk of damage to the interests of our clients. The market data is derived from independent sources believed to be reliable, however we make no representation or warranty of its accuracy or completeness, and accept no responsibility for any consequence of its use by recipients. Reproduction of this information, in whole or in part, is not permitted.


 

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