Everyone knows that European economic data was lackluster in the morning. Retail sales for the month slumped as the Spanish Treasury was unable to muster enough demand for their recent bond offering. But, the reports have sparked a bearish decline in the EURUSD, which has fallen by almost 70 pips on the session and remains trading below the 1.3100 psychological figure. The sharp drop off has some wondering if the Euro rally is over.
Taking a look at retail sales figure for October, it’s easy to see that the European Union isn’t in any type of recovery. With 25% unemployment in both Greece and Spain, and enough austerity to convince consumers to rein in their spending, it’s not hard to guess why estimates were in the area of a 0.1% dip for the month.
But, it seems a majority of this month’s slide was attributed to a huge drop off in German retail spending. According to Eurostat, sales in Germany actually plummeted by 2.8% in October. The decline is reflective of rising unemployment, which advanced for the eighth straight month in November, and is indicative of a potentially deeper contraction for the region’s largest economy. Previously, expectations were for the German economy to remain relatively untouched by the current fiscal crisis. Now, lower German consumption may translate into lower probabilities for a near term economic recovery in the EU – Euro bearish.
Additionally contributing to downward pressure on the Euro were results from today’s Spanish bond auction. Although official stats reveal solid demand for the offering –which came in at a 2.3 times offer, rising above the 1.8 times witnessed last time around – the auction fell short. The Treasury was only able to sell 4.3 billion euros in new Spanish debt.
This is shy of the 4.5 billion euros set by Treasury officials and, unfortunately, has sparked further speculation that the Spanish government may actually need to officially request a bailout beginning in Q1 of 2013. Such a scenario would only complicate matters for European leaders given the already calmed sentiment derived from recent bailout aid to the country’s banks and the Greek debt restructuring.
The day’s sentiment has weighed on EURUSD in the short term, shifting the technical outlook a bit. The short November rally may be coming to an end as the major currency has now formed a doji candlestick just below resistance at 1.3150. The barrier could act as a major incentive for Euro bears to get short in the near term. Look for support at the 1.3045 December 4th low to be tested. A close via the level will likely spur further declines lower.
Source: FXTrek Intellicharts