EUR/USD drops below key support after weak US retail sales data

The EUR/USD retreated after the latest US retail sales and producer price index (PPI) data. The pair dropped to 1.2093, which was the low

EUR/USD chart

US retail sales data

Consumer spending is the biggest constituent of the US GDP. As such, the performance of the retail sector is one of the most closely watched economic numbers by traders, investors, and policymakers. 

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According to the Census Bureau, the country’s retail sales declined by 1.3% in May as the impacts of the recent stimulus continued to fade. This decline led to a year-on-year increase of 25.6% because of the last year’s low base as the US shut down its economy.

Core retail sales, a closely-watched figure that excludes the volatile food and energy products, declined by 0.7% in May after falling by 0.8% in the previous month. 

Further data showed that the PPI increased by 6.6% in May as commodity prices continued to rise. In the past few months, the prices of most commodities like iron ore, gasoline, and crude oil have more than doubled. With the gap between the PPI and CPI narrowing, it means that some producers are passing the cost to consumers. 

Meanwhile, the EUR/USD also reacted to the latest New York manufacturing index. The numbers showed that the index declined from 24.30 to 17.40 in June. 

These numbers came as the Federal Reserve started its latest monetary policy meeting. It will publish its decision on Wednesday evening. Analysts expect the bank will leave interest rates at the current record low and the $120 billion a month quantitative easing policy intact.

Earlier on, data from Europe showed that the German consumer price index (CPI) rose by 2.5% in May while in France, the CPI rose by 1.4%. Eurostat published strong EU industrial production data on Monday.

EUR/USD technical analysis

EUR/USD technical chart

The four-hour chart shows that the EUR/USD declined before and after the latest US retail sales data from the United States. On the four-hour chart, the pair’s decline is being supported by the 25-day and 50-day exponential moving averages (EMA). It has also moved below the 23.6% Fibonacci retracement level. Therefore, the pair will likely keep falling as bears target the 38.2% retracement level at 1.2050.

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