Euro Ends Day Just Below Key Resistance

Euro Ends Day Just Below Key Resistance - Will Euro-zone Retail Sales Weigh on Friday?

The euro continued to edge higher versus the US dollar, but major resistance at 1.3750 is blocking the pair’s way higher. Economic data out of the Euro-zone still suggests that the European Central Bank will cut rates next Thursday, but as we saw with the British pound and the Bank of England’s rate cut today, that doesn’t mean the currency will automatically fall lower. Nevertheless, looking at the data on hand, a measure of confidence amongst European consumers and executives fell during December to the worst level since record keeping began in 1985, suggesting that consumption is sure to slow further and businesses are far less prone to invest.

Furthermore, the Euro-zone’s unemployment rate rose to a two-year high of 7.8 percent in November from 7.7 percent, and given the dour outlooks for the economy, the deterioration of the labor market is likely to worsen. Friday’s data should add to this gloomy mix, as retail sales growth in the Euro-zone is forecasted to have stagnated during the month of November, leaving the annual rate negative for the sixth straight month. Such a result would be in line with the steady drop in the Purchasing Managers' Index (PMI) for the Euro-zone services sector, which has signaled a contraction in business activity throughout the second half of 2008. In fact, given this correlation, the timelier PMI results suggest that retail sales will remain weak not only in this reading for November, but for December as well. The impact on the euro should be minimal, barring a sharp, unexpected decline.

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