“EUR/USD Plunges to Around 1.0800 Following Weak German Retail Sales Data, Focus Shifts to Fed Policy”

Amidst apprehension ahead of the Federal Reserve’s monetary policy, the EUR/USD pair sharply declines, approaching the key support level of 1.0800. The descent is triggered by disappointing German Retail Sales figures, contributing to a subdued market sentiment. December’s Monthly Retail Sales unexpectedly contracted by 1.6%, contrary to the anticipated 0.7% expansion, with November’s consumer spending already witnessing a substantial 2.5% decline.

The annual Retail Sales exhibited a moderated decline of 1.7%, compared to November’s 2.4% drop, signaling the strain on households due to higher interest rates implemented by the European Central Bank (ECB) and enduring inflationary pressures. The bleak Retail Sales data fosters expectations of potential early rate cuts by the ECB, weighing on the Euro.

Despite ECB President Christine Lagarde’s indication of potential interest rate reductions starting in late summer, prospects for delayed rate cuts have diminished following the lackluster Q4 Gross Domestic Product (GDP) preliminary data, especially after the disappointing Retail Sales figures.

The Eurozone economy, managing to evade a technical recession, maintained stagnancy in the final quarter of 2023 after a 0.1% contraction in the July-September quarter.

Investors remain on edge as they await the Federal Reserve’s interest rate decision. In the early European session, S&P500 futures register significant losses, while the US Dollar Index (DXY) modestly rebounds above 103.50.

As per the CME Fedwatch tool, expectations indicate the Fed will maintain interest rates within the 5.25-5.50% range. The focus is now on the Fed’s outlook on interest rates, crucial in determining market dynamics.

EUR/USD