EURUSD Hits Another 2014 Low, More to Come?

The EURUSD moved back down south on Tuesday, recording another fresh 2014 low (1.3357) in the process. The financial markets reacted unfavorably to the announcement that June’s Retail Sales narrowly missed expectations. Retail Sales increased by 0.4%, slightly below the 0.5% expected.

After analyzing the Retail Sales release in more detail, the market reaction could be considered as slightly surprising. On an annualised basis, Retail Sales increased by 2.4%, double the consensus.

However, the 60 pip EURUSD decline goes some distance towards shedding light on the currently weak EU economic sentiment. It could even be suggested that the economic sentiment became even weaker last week following the announcement that during July, EU CPI (inflation) unexpectedly declined to its lowest level in five years. Perhaps even more disappointingly, indications of deflation have already emerged in Spain, with Spanish CPI contracting by an annualised 0.3%.

There remains at least two upcoming major event risks to the EURUSD valuation this week. The latest European Central Bank (ECB) decision is announced on Thursday. This is shortly followed by the ECB President, Mario Draghi press conference. In regards to the former, no action is currently expected from the ECB. Despite the negative CPI headlines last week, it does appear that the Central Bank are willing to offer recently implemented stimulus measures time before considering the possibility of more stimulus.

The Mario Draghi press conference seems the more likely candidate to place the EURUSD valuation at risk. The ECB President will probably be heavily quizzed on his thoughts behind the deteriorating EU CPI data and whether the ECB will consider introducing Quantitative Easing anytime soon. Draghi has made no secret of late regarding personally feeling that the EURUSD is overvalued (despite the pair declining by over 500 pips since May) and it would not surprise if he aims to talk down the EU currency this Thursday.