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EUR/USD Risks Larger Recovery on Upbeat Euro-Zone Retail Sales

EUR/USD Risks Larger Recovery on Upbeat Euro-Zone Retail Sales

David Song, Shuyang Ren,

- Euro-Zone Retail Sales to Expand for First Time Since July.

- Will Signs of a Stronger Recovery Encourage the ECB to Adopt an Improved Outlook?

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Trading the News: Euro-Zone Retail Sales

A rebound in Euro-Zone Retail Sales may generate a near-term rebound in EUR/USD as signs of a stronger recovery raises the European Central Bank’s (ECB) scope to retain its current policy throughout 2016.

What’s Expected:

EUR/USD Euro-Zone Retail Sales

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Why Is This Event Important:After further reducing the deposited-rate and adjusting its quantitative-easing program in December, the Governing Council may largely endorse a wait-and-see approach in the first-half of the year as the non-standard measures continue to work their way through the real economy. Positive developments coming out of the monetary union may encourage the ECB to adopt an improved outlook for the region but, central bank President Mario Draghi may keep the door open to implement additional monetary support in order to achieve the mandate for price stability.

Expectations: Bullish Argument/Scenario

Consumer Price Index (YoY) (DEC A)0.3%0.2%
Markit Purchasing Manager Index- Composite (DEC F)54.054.3
Employment (QoQ) (3Q)--0.3%

Discounted prices paired with the pickup in private-sector activity may spur a marked rebound in household consumption, and a positive sales report may halt the near-term decline in the single-currency as market participants scale back bets for more ECB easing.

Risk: Bearish Argument/Scenario

M3 Money Supply (YoY) (DEC)5.2%5.1%
Labour Costs (YoY) (3Q)--1.1%
Business Climate Indicator (NOV)0.450.36

However, waning confidence accompanied the slowdown in private-lending may drag on retail sales, and a dismal development may encourage the ECB to further insulate the region as President Draghi largely retains a dovish outlook for monetary policy.

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How To Trade This Event Risk(Video)

Bullish EUR Trade: Euro-Zone Retail Sales Climbs 0.2% or Greater

  • Need green, five-minute candle following a positive growth report to consider a long EUR/USD trade.
  • If market reaction favors a bullish Euro trade, buy EUR/USD with two separate position.
  • Set stop at the near-by swing low/reasonable distance from cost; at least 1:1 risk-to-reward.
  • Move stop to entry on remaining position once initial target is met, set reasonable limit.

Bearish EUR Trade: Private-Sector Spending Continues to Disappoint

  • Need red, five-minute candle to favor a short EUR/USD trade.
  • Implement same strategy as the bullish euro trade, just in reverse.

Potential Price Targets For The Release


EUR/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • EUR/USD remains at risk of giving back the advance following the ECB’s December meeting amid the deviating paths for monetary policy but, the pair may consolidate going into the end of the week as market participants gauge the trajectory for U.S. interest rates.
  • DailyFX Speculative Sentiment Index (SSI) shows increased volatility in retail positioning as FX traders flip back net-short EUR/USD, with the ratio slipping to -1.07 as 48% of traders are now long.
  • Interim Resistance: 1.1052 (November high) to 1.1090 (50% retracement)
  • Interim Support: Interim Support: 1.0380 (78.6% expansion) to 1.0410 (61.8% expansion)

Impact that Euro-Zone Retail Sales has had on EUR/USD during the last quarter

PeriodData ReleasedEstimateActualPips ChangePips Change
OCT 201512/03/2015 10:00 GMT0.2%-0.1%+7+383

October 2015 Euro-Zone Retail Sales


Euro-Zone Retail Sales failed to meet market expectation, with household consumption contracting another 0.1% in October. A deeper look at the report showed discretionary spending on food/beverages slipped 0.5%, with gasoline receipts contracting 0.4% during the same period. The ongoing slack in the real economy may encourage the European Central Bank (ECB) may continue to push monetary policy into uncharted territory as it struggles to achieve its one and only mandate for price stability. The market reaction to the retail sales print was limited, with market participants waiting for the ECB’s December 3 interest rate decision but, EUR/USD largely surged following the policy meeting to close the day at 1.0937.

Read More:

NZD/JPY Testing Support- Outlook Remains Bearish Sub-81.40

Price & Time: EURUSD - Still In No Man’s Land

Bearish NZDUSD As Double-Topping Pattern Develops on Divergence Into 200-DMA

Trading Opportunities of 2016: Key Currency Crosses to Watch amid the Diverging Paths for Monetary Policy

Avoid the pitfalls of trading by steering clear of classic mistakes. Review these principles in the "Traits of Successful Traders" series.

--- Written by David Song, Currency Analyst and Shuyang Ren

To contact David, e-mail Follow me on Twitter at @DavidJSong.

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