Euro at 3-week low on Fed, retail sales

The euro continues to struggle this week and hasn’t posted a winning daily session since Monday. In the European session, EUR/USD is trading at 1.2112, down 0.12% on the day.

US dollar jumps as Fed reduces corporate purchases

The US dollar flexed some muscles on Thursday, as EUR/USD fell by 0.68%. The dollar jumped after the Federal Reserve announced that it would begin to reduce its corporate bonds portfolio. The Fed ended its purchase of corporate bonds in 2020 but had not given an indication until now as to its intentions.

The Fed has made clear that the sale of corporate bonds is not a monetary policy action, as it does not affect the purchase of government bonds. Despite this clarification, the move drew a strong response from the market as the US dollar made significant gains. Investors will view the move as a step towards a taper of QE and the possibility of a rate hike sooner rather than later. The acceleration in the ISM Services PMI, which hit a 12th consecutive month of growth in May, has fuelled investor optimism that the Fed may have to tighten policy.

The market will quickly shift focus from the Fed to US nonfarm payrolls (12:30 GMT). The consensus stands at 644 thousand, which would be a strong acceleration from the April release of 266 thousand. It will be interesting to see how the Fed responds to the NFP report, given the heightened speculation about a potential tightening of policy.

In Europe, a poor Retail Sales release from the eurozone is weighing on the euro. The May release came in at -3.1%, worse than the consensus of -1.4%. The disappointing release mirrored German Retail Sales, which posted a sharp decline of 5.5%, compared to forecast of -2.4%.

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EUR/USD Technical

• EUR/USD is putting pressure on resistance at 1.2137. Above, there is resistance at 1.2195
• On the downside, there is support at 1.2025. This is followed by support at 1.1971

For a look at all of today’s economic events, check out our economic calendar. www.marketpulse.com/economic-event

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