Euro drops against Canadian Dollar despite stronger German Retail Sales

EUR/CAD weakens as lower prices lead markets to scale back ECB rate hike expectations, countering German retail growth.
Germany’s Retail Sales jumped 1.1% MoM and 1.8% YoY, comfortably beating forecasts.
The commodity-linked CAD could struggle amid lower oil prices.

Akhtar Faruqui FXStreet

EUR/CAD depreciates after two days of gains, trading around 1.6220 during the early European hours on Tuesday. The currency cross remains subdued as the Euro (EUR) holds losses following the release of German Retail Sales data.

Germany’s retail sector saw a surprise rebound in May, with consumer spending jumping 1.1% month-on-month and 1.8% annually, comfortably beating market forecasts, according to Destatis. However, the strong consumer data is being balanced by retreating energy prices, causing markets to pare back aggressive European Central Bank (ECB) rate hike expectations.

While Oxford Economics and Capital Economics project that ECB interest rates have peaked, traders are still factoring in one final quarter-point increase to 2.50%, looking ahead to Tuesday's preliminary German inflation data for definitive direction.

The downside of the EUR/CAD cross could be limited as the commodity-linked Canadian Dollar (CAD) struggles under the weight of lower oil prices. Lower oil prices put downward pressure on the loonie dollar as Canada is one of the largest crude exporters.

Crude oil prices face downward pressure as traders monitor potential United States (US)-Iran talks in Doha later in the day amid a fragile interim ceasefire. Reuters cited KCM Trade Chief Market Analyst Tim Waterer, who noted that while investors are pricing in hopes for a positive outcome, a true normalization of oil flows through the Strait of Hormuz remains unseen. "The market is cautiously hopeful but still hedging its bets until we see more tangible signs of de-escalation," Waterer stated.

Economic Indicator

Retail Sales (YoY)

The Retail Sales released by the Statistisches Bundesamt Deutschland is a measure of changes in sales of the German retail sector. It shows the performance of the retail sector in the short term. Percent changes reflect the rate of changes of such sales.The changes are widely followed as an indicator of consumer spending. The positive economic growth anticipates "Bullish" for the EUR, while a low reading is seen as negative, or bearish, for the EUR.

GBP/USD turns negative; slips back to 1.3530

GBP/USD comes under pressure and weakens toward the 1.3530 zone on Tuesday. Cable thus leaves behind two daily upticks in a row and retreats further from Monday’s multi-week tops past 1.3570 following humble gains in the Greenback and disheartening UK jobs data.

EUR/USD comes under pressure near 1.1570

EUR/USD could not sustain the earlier bullish attempt toward the proximity of 1.1600 the figure, coming under fresh downside pressure and revisiting the 1.1580-1.1570 band as the NA session draws to a close on Tuesday. The better tone in the US Dollar in the latter part of the day weighs on the pair amid steady volatility in the Middle East. Looking forward, the release of the FOMC Minutes takes centre stage on Wednesday.

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Gold holds steady below $4,350, following the previous day's heavy losses, as traders await the release of FOMC Minutes for cues about the Fed's future policy path. In the meantime, the recent surge in US bond yields, bolstered by inflation fears stemming from rising oil prices, supports the US Dollar amid the Middle East crisis and should cap the non-yielding bullion.

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Fiscal concerns and doubts on Fed independence send US yields to long-term highs

US Treasury yields keep rising across the curve this week, with the yield for the 30-year Treasury bond reaching its highest level since 2007, during the global financial crisis, at 5.33% so far on Monday. A mix of concerns about the ballooning US fiscal deficit and growing doubts about the Federal Reserve’s Independence are increasing pressure on US Government Bonds.

Why is Crude Oil priced for a reopening the ships haven't made?

Fourteen vessels crossed the Strait of Hormuz on Tuesday. Before the war, the count ran near 120 a day. In the sessions since the waterway was publicly declared open, Brent has drifted back to $87 and West Texas Intermediate (WTI) to $81, both a little lower again on Wednesday, with daily momentum on each unwound from the top of its range in late July to the low twenties now.