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Euro-Zone Retail Sales Disappoint Expectations, Euro Remains Higher

By Benjamin Spier
05 February 2013 12:02 GMT

THE TAKEAWAY: Euro-zone retail sales decline 0.8% in December -> BoJ governor announces he will step down on March 19 -> Euro continues to trade higher

Euro-zone retail sales declined by 0.8% in December, disappointing expectations for a 0.5% decline and lower than November’s revised 0.1% decline in retail sales. Sales were down 3.4% from December 2011, according to Eurostat.

The average retail trade volume for 2012 was 1.7% less than the average volume for 2011. Food, drinks, and tobacco sales fell by 0.8% in December. Spain saw the largest decrease in retail sales, down 2.2%, and Luxembourg saw the biggest increase of 2.2%.

The Euro-zone experienced a technical recession in Q2 and Q3 of 2012, and it is unclear if the region returned to growth in the final quarter of the year. Today’s retail sales figures lend support to those who expect continued weakness. However, the ECB predicted that the Euro-zone will recover in 2013, and a composite index released earlier today supported that view.

Also in the Europe today, France President Hollande spoke before the European Parliament. He said that the Euro-zone needs an exchange rate policy, thereby taking France Finance Minister Moscovici’s comments about the dangers of a strong Euro one step further. The Euro has climbed 1500 points against the US Dollar since the summer of 2012, and many are worried that the sudden rise in Euro may hurt exports in some countries.

Seemingly referring to UK PM Cameron’s recent call for negotiations over the EU treaty, Hollande also warned about national interests taking precedence over Europe. He said a new accord must not weaken the economy.

At the time of this writing, Euro is trading around 1.3560 against the US Dollar, after erasing much of yesterday’s losses on the improved PMI’s. EUR/USD may now see resistance by the recent 14-month high set at 1.3710, and the pair may see support by a broken resistance line around 1.3500.

In other economic releases, UK PMI for services for January indicated a return to expanded activity. GBP/USD tested 1.5800 following the release, but failed to maintain a break above the key figure. In Switzerland, the trade balance fell to 1 billion Francs in December, but the release had no significant effect on Franc trading.

Bank of Japan Governor Shirakawa announced today that he will step down from his position on March 19 along with the two BoJ deputies, who were previously scheduled to finish their term on that date. The resignation comes a bit earlier than his scheduled April 8 end of term. There are expectations for the government to replace Shirakawa with a more dovish governor, who might be willing to step up stimulus to reach the 2% inflation goal faster. The announcement sent USD/JPY back above 93.00, and Shirakawa will hold a press conference at 13:00 GMT.

EURUSDDaily: February 5, 2013

Euro-Zone_Retail_Sales_Dissapoint_Expectations_Euro_Remains_Higher_body_eurusd_daily_chart.png, Euro-Zone Retail Sales Disappoint Expectations, Euro Remains Higher

Chart created by Benjamin Spier using Marketscope 2.0

-- Written by Benjamin Spier, DailyFX Research. Feedback can be sent to bbspier@fxcm.com .

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05 February 2013 12:02 GMT