EUR/USD could have found a cap at 1.3588: the pair is now sliding lower towards the 1.3550 line, consolidating gains. After the Fed decision, the euro remained in overbought territory.
The main reasons for the early slides are:
- A dismal retail sales report from Germany: the euro-zone’s locomotive reported a big drop of 1.7% in retail sales, contrary to expectations for a rise of 0.1%. While German business confidence is on the rise, but the reality on the ground is different.
- A rise in sovereign bond yields – the main driver of the euro’s rise was an improvement in bond markets, especially the Spanish and Italian ones. Also here, there was a huge disconnect with the real economy: Spain’s economy contracted by 0.7% in Q4, and an end to the current recession is not in sight. And now, also bond yields go up.
- Weak French consumer spending: There was no change in French in December, while a rise of 0.2% was expected.
1.35 is only a minor line and the pair is slipping beyond this line at the time of writing. Much more significant support is at 1.3480, followed by 1.34. On the upside, 1.3588 is emerging as resistance, but it is important to note 1.3610 and 1.3690.
For more, see the EUR/USD forecast.
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