Euro remains depressed after weak Eurozone Retail Sales and with US NFP on tap

EUR/USD extends losses to levels near 1.1170, from highs near 1.1270 on the previous day, hit by risk aversion.
Eurozone Retail Sales dropped beyond expectations in September, adding bearish pressure on the Euro.
Higher demand for safe assets amid the sell-off in equities and solid US data are keeping the US Dollar buoyed.

The Euro (EUR) accelerates its reversal on Friday, as Eurozone Retail Sales disappoint, while risk-aversion and market expectations of a strong US Nonfarm Payrolls report later in the day are supporting the US Dollar’s (USD) recovery. The EUR/USD pair trades near 1.1170 at the time of writing, down from highs near 1.1270 on Thursday, on track for a minor weekly gain

Retail consumption in the Euro Area dropped by 0.7% in September, according to data released by Eurostat on Friday, exceeding market expectations of a more moderate 0.1% decline, and following a 0.1% uptick in August. Year-over-year, Eurozone Retail Sales growth halved to 0.4% from August’s 0.8% growth, below the 0.6% consensus.

Before that, German data revealed that factory output grew 0.7% in September, beating market expectations of a flat reading and above August’s 0.1% growth. The Euro, however, failed to draw any significant support from these figures.

USD shines amid risk-off markets and positive US data

The safe-haven US Dollar has drawn support from the selloff in equity markets led by growing concerns about the AI sector. Chipmaker shares have plunged in the US and Asia, crushed by investors' fears that the Democratic sweep in the United States will result in tougher regulatory requests and cancellations in data-centre construction plans.

Strategists at OCBC argue that the broader environment, with “US growth still solid, inflation sticky and the Fed on track for further tightening (...) remains broadly USD supportive.”

Against this background, the market has its eyes set on October’s Nonfarm Payrolls (NFP) report, due later on Friday. Previous labour data beat expectations this week; Jobless Claims fell to their lowest level in nearly four months last week, ADP employment increased well beyond consensus in October, and the JOLT report showed sharply higher job openings in September. If the NFP follows this trend, it might provide additional support to the USD.

Economic Indicator

Retail Sales (MoM)

The Retail Sales data, released by Eurostat on a monthly basis, measures the volume of retail sales in the Eurozone. It shows the performance of the retail sector in the short term, which accounts for around 5% of the total value added of the Eurozone economies. Retail Sales data is widely followed as an indicator of consumer spending. Percent changes reflect the rate of changes in such sales, with the MoM reading comparing sales volumes in the reference month with the prior month. Generally, a high reading is seen as bullish for the Euro (EUR), while a low reading is seen as bearish

Economic Indicator

Nonfarm Payrolls

The Nonfarm Payrolls release presents the number of new jobs created in the US during the previous month in all non-agricultural businesses; it is released by the US Bureau of Labor Statistics (BLS). The monthly changes in payrolls can be extremely volatile. The number is also subject to strong reviews, which can also trigger volatility in the Forex board. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish, although previous months' reviews and the Unemployment Rate are as relevant as the headline figure. The market's reaction, therefore, depends on how the market assesses all the data contained in the BLS report as a whole.

Why it matters to traders?

America’s monthly jobs report is considered the most important economic indicator for forex traders. Released on the first Friday following the reported month, the change in the number of positions is closely correlated with the overall performance of the economy and is monitored by policymakers. Full employment is one of the Federal Reserve’s mandates and it considers developments in the labor market when setting its policies, thus impacting currencies. Despite several leading indicators shaping estimates, Nonfarm Payrolls tend to surprise markets and trigger substantial volatility. Actual figures beating the consensus tend to be USD bullish.