EUR/USD slides as US retail sales and mortgage data disappoint

The EUR/USD pair dropped today amid a series of weak economic data from the United States. The Mortgage Bankers Association (MBA) released negative mortgage data for the second straight week while the Census Bureau released weak retail sales numbers. The New York manufacturing index also dropped to its lowest level on record.

Mortgage data disappoint

The current coronavirus pandemic has decimated the US economy. More than 16 million people have filed for unemployment benefits while activity in the manufacturing and services sector has been under pressure. According to Bloomberg, some economists are predicting that the unemployment rate will surge to 30 per cent. That will be the worst number since the Great Depression of the 1920s.

This slowdown has hurt the housing sector, according to mortgage data from the MBA. The data showed that mortgage applications volume rose by 7.3 per cent last week. This surge was driven primarily by refinancing as interest rates fell. The average interest rate for a 30-year mortgage dropped to a record low of 3.45 per cent from the previous 3.49%. On the negative side, mortgage applications to purchase a home fell for the fifth straight week. In a report yesterday, Freddie Mac said that the US housing market was facing its biggest test in over a decade.

At the same time, home sales in the United States have fallen. According to Bankrate, sales in New York City have fallen by 70 per cent while those in California have fallen by more than 60 per cent. Some housing analysts expect national home sales to drop by 50 to 70 per cent. The situation will likely get worse now that Wells Fargo, the biggest home mortgage lender, has halted its jumbo loans market. The bank will only refinance jumbo loans for customers with at least $250k.

Also, inventory for existing homes has dropped to about three months of supply, according to the National Realtors Association. This is lower than in the previous seven months.

US retail sales fall

Another disappointing data came from the Census Bureau, which released retail sales numbers for March. The headline retail sales dropped by a seasonally-adjusted rate of 8.7 per cent to $483.1 billion in March. This was worse than the 0.4 per cent gain in February. Economists polled by Bloomberg expected the retail sales to fall by 8 per cent. The annualised retail sales have been falling since December when they peaked at 5.52 per cent.

The core retail sales dropped by 4.5% in March after falling by 0.4% in the previous month. The weakness in retail sales was driven mostly by a 28 percent gain in food and beverages stores. This was offset by a 50 per cent drop in clothing and accessories. Motor vehicle and parts dealers declined by 4.1 per cent while electronics and appliance stores fell by 4.6 per cent.

In another sad sign, the New York Fed manufacturing index declined to 78.20 in early April after falling to 21.50 in the previous month. This is its lowest level in history by a wide margin. The report said that:

“By way of comparison, the lowest level this indicator had reached prior to April was -34.3 during the Great Recession.”

The decline of US manufacturing will likely get worse since many large manufacturers are struggling. For example, Boeing, the biggest manufacturer in the US, lost 150 orders for the 737 Max, according to the Washington Post. The company will lose more orders as most airlines struggle.

EUR/USD technical outlook

The EUR/USD pair dropped to an intraday low of 1.0860 after the disappointing retail sales and manufacturing data. On the hourly chart, the pair has moved below the 50 per cent Fibonacci Retracement level, and is approaching the 61.8 per cent level. The Average True Range (ATR), which is a common indicator of volatility has also started to rise. The pair may move lower and test the 61.8% retracement level of 1.0850.