EUR/USD surge gains momentum after impressive EU retail sales data

EUR/USD surge gains momentum after impressive EU retail sales data
Written by:
Crispus Nyaga
5th August, 11:03
  • The EUR/USD pair rally accelerated after impressive services PMI and retail sales numbers from the Eurozone.
  • Retail sales rose by 1.3% in June after falling by 3.1% in the previous month.
  • Services PMI increased to 54.7 in July, crossing the 50.0 milestone for the first time since February.

The EUR/USD pair upward trend is continuing as traders react to the strong services PMIs and retail sales growth in the Eurozone. The pair is trading at 1.1852, which is a few pips below the July high of 1.1905.


Eurozone retail sales rise

The volume of retail sales in Europe continued to increase in June as more countries relaxed their containment measures. According to Eurostat, retail sales in the bloc rose by 5.7% in June on a month on month basis. This growth was slightly below the 5.9% that analysts were expecting and below the May’s growth of 20.3%. The sales rose by 1.3% on a year on year basis after falling by 3.1% in May.

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The highest retail sales growth was in Ireland, Estonia, and Denmark, where the sales rose by 10.2%, 6.6%, and 6.5%, respectively. On the other hand, the biggest laggards were Bulgaria, Malta, and Luxembourg, where the sales fell by 18.1%, 8.4%, and 7.7%, respectively.

Still, analysts at ING are not convinced. They wrote the following in a note:

“Don’t get too excited about these strong numbers though, as pent-up demand fades, the picture of rising unemployment and a stalled recovery in consumer confidence will subdue sales growth in the second half of the year. “

Eurozone services sector recover

Meanwhile, the services sector in Europe continued to recover, according to data by Markit. The services PMI in the bloc rose to 54.7 from the previous 48.7. Analysts polled by Reuters were expecting the PMI to increase to 55.1.

The increase the PMI was spread across the Eurozone. In Germany, France, and Italy, the services PMI increased to 55.3, 57.3, and 51.6, respectively. This growth was driven by a modest recovery of incoming business. Most of the new business was from domestic customers while exports contracted.

Jobs in the services sector rose modestly as business confidence rose to the highest level in five months. Meanwhile, the composite PMI, which also includes the manufacturing sector, increased to 54.9, the highest point since June 2018. It was the first time since February that the PMI has crossed the important level of 50. In a statement, Chris Williamson of Markit said:

“Combined with a surge in manufacturing production, the renewed expansion of the service sector bodes well for the economy to rebound in the third quarter after the unprecedented slump seen in the second quarter.”

EUR/USD outlook

EUR/USD technical forecast

The EUR/USD pair will next react to the non-manufacturing PMI data from the United States. Analysts polled by Reuters expect that the PMI will ease slightly from the previous 57.1 to 55.0. The pair will also react to the ADP nonfarm private payroll numbers, that will come out later today.

Analysts have mixed feelings about the EUR/USD pair. Those at Danske Bank believe that the par will drop to 1.1200 in the next few months. At the same time, the median Bloomberg one-month forecast by analysts is 1.1570, which is lower than the current price.

The daily chart shows that the EUR/USD pair has been in a strong upward trend. Subsequently, the price is above the short and medium-term moving averages while the RSI is still in the overbought level. Therefore, after the recent pause, it seems like the pair will continue rallying, especially if it moves above last month’s high of 1.1904.

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