EUR/USD pulls back after weak German retail sales

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his… read more.
on Jun 2, 2021
  • The EUR/USD retreated after Germany published weak retail sales data.
  • The sales declined by 5.5% in April because of the lockdown in the second half of the month.
  • Focus shifts to the upcoming ECB decision and US non-farm payroll data.

The EUR/USD price retreated on Tuesday after the relatively disappointing German retail sales. The pair fell to 1.2180, which was 0.60% below the highest level on Tuesday.

EUR/USD
EUR/USD price action

German retail sales disappoint

Germany is the biggest economy in the Eurozone and its data tends to have a major impact on the bloc’s policymakers like the European Central Bank (ECB). 

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In a report today, Destatis said that the country’s retail sales declined by 5.5% in April from the previous month. This was a worse decline than the median estimate of 2.0% and the previous month’s increase of 7.7%. On a year-on-year basis, the retail sales rose by 4.4% after rising by 11% in the previous month. 

In its report, Destatis attributed the decline to the lockdown that was implemented in the second half of the month and the substantial shopping before Easter in March. 

The data came a day after Eurostat published strong inflation data from the Eurozone. The numbers revealed that the headline consumer price index (CPI) rose by 2.0% in April from 1.6% in the previous month. This figure was in line with the target by the ECB. It was the first time the bloc’s inflation rose to 2.0% since 2018.

These numbers came a week before the ECB delivers its interest rate decision. Analysts expect the bank will leave interest rates unchanged even as inflation rises and the vaccine rollout extends. They also expect the bank to leave its asset purchases intact since Lagarde has already warned that the current inflation pressures are temporary. In a note, analysts at ING wrote:

“By and large, it is true that maintaining PEPP purchases at their current rate for another quarter should be the overriding influence but, this has to be weighed against the fact that Lagarde has done a good job steering markets towards this outcome last week.”

EUR/USD technical analysis

EUR/USD
EUR/USD technical chart

The daily chart shows that the EUR/USD has pulled back after the weak German retail sales numbers. However, the pair remains above the 25-day and 50-day exponential moving averages (EMA), which is a sign that bulls remain in control. 

The pair is also slightly above the lower line of the ascending channel pattern. It is also slightly below 1.2245, which was the highest level on February 25. Therefore, the pair will likely remain in a bullish trend so long as it remains above the two moving averages.

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