EURUSD – sales weaker, yields stalled…

US retail sales rose by 0,3% m/m in January (both headline and core) – weaker than expected by the market (0,5% m/m). Even though sales is still running at around 8% annually, weaker data was an excuse for the fixed income market to take a breath after a strong rise in yields. A significant rise in yields (over 50 bps for FRA18x24 in a span of two weeks) pushed the dollar up against the euro and yen so the data released yesterday provided an opportunity for some profit taking.

…the dollar needs stronger output and inflation

While the market still does not focus on the euro crisis, the US data needs to be strong for the decline on the EURUSD to continue. While the key releases are scheduled for Thursday (CPI and claims), today’s figures will play a role as well. Output, housing starts and especially PPI may influence market expectations ahead of the CPI report. Moreover, a PPI might be seen as a gauge of future trends in a consumer inflation as higher prices of commodities (ranging from industrials to food) seem less and less a temporary phenomenon. Even if the data doesn’t support the dollar, the technical picture will remain favorable for the USD for as long as the pair remains below the line drawn along recent highs (close to 1,3650 at the moment).  

Events to watch – US data and minutes, labor market and inflation report in UK, US fuel inventory data

US data on PPI (consensus +0,8% m/m, +0,2% for the core) and starts (consensus 540k for starts and 560k for permits) will be released at 8.30 ET, 14.30 CET and the output data (consensus +0,5% m/m) will be released at 9.15 ET, 15.15 CET. Investors will also await the minutes from the Fed meeting (2 PM ET, 20.00 CET) generally expecting a dovish tone.

After an in-line rise in the UK’s CPI (to 4% in January), interest rates expectations will be further shaped by the unemployment data (4.30 ET, 10.30 CET, consensus -3k) and the inflation report (5.30 ET, 11.30 CET) today. US fuel inventories are scheduled for today (10.30 ET, 16.30 CET) as well.    

Przemysław Kwiecień PhD, Chief Economist

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