· Currencies Reverse Despite New Highs For Stocks
· USD Rallies On Stronger Empire State Survey But Retail Sales A Risk
· EURO Gives Up Gains Despite Stronger ZEW
· AUD Lower On Dovish RBA Minutes
· GBP Traders Look Ahead To Stronger CPI
· CAD Sells Off Despite Prospect Of Stronger Inflation Data
The end of 2020 was particularly tough for retailers as consumer spending dropped three months in a row. Economists are looking for tomorrow’s retail sales report to show a rebound in January. But with wage and job growth slowing, this forecast may be tough to meet. If consumer spending falls for four straight months, vaccine optimism may not be enough to prevent a correction in stocks. Given the direct relationship between stocks, risk appetite and currencies, a sell-off in equities would mean losses for the euro, sterling and commodity currencies accompanied by gains in the U.S. dollar, Japanese Yen and Swiss Franc.
FOMC minutes are also due for release Wednesday afternoon. Hiring has been slow, but we expect businesses to be optimistic. The FOMC minutes should be mildly positive for the greenback, but retail sales will be the primary driver of FX flows tomorrow.
According to the president of the ZEW institute:
“The financial market experts are optimistic about the future. They are confident that the German economy will be back on the growth track within the next six months.”
However, the current conditions assessment was weaker in Germany, which means the economy is performing worse than initially anticipated. Eurozone fourth quarter GDP was revised slightly higher, but better-than-expected U.S. data and a snapback in the U.S. dollar drove EUR/USD down to 1.21.
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