5 July 2005, 16:04  Euro Bounce off Yearly Lows

Better than expected Retail Trade data from Germany and the Euro-zone propelled the euro off yearly lows made in early European morning trade today after the currency hit bottom at 1.1868. German Retail Sales jumped 2.7% on a year over year basis vs. projections of no change while EZ Retail Trade registered a gain of 1.1% on a month over month basis against consensus of only 0.4%. Both of the reports were materially stronger than expected and suggest that European consumer demand may have been revived despite the record high oil prices which have pushed gasoline costs across most of the region to $5/gallon Although the data was euro positive, market sentiment towards the single currency remains extraordinarily bearish as the Continent's political problems remain unresolved. Furthermore, rubbing salt on the wounds of already badly injured euro bulls has been the series of positive economic reports from the US last week which only emboldened dollar longs to press their trades. Most notably Friday's strong ISM Manufacturing release has now shifted markets expectation of a Fed interest rate cap from 3.5% to 4.0%.

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