New data on retail sales and weekly jobless claims in the U.S. have eased concerns about the prospects of the U.S. economy, which has been somewhat restrained by high interest rates. The dollar responded to this by strengthening against the euro, British pound, and Japanese yen. However, some of these gains were offset by active buying of risk assets towards the end of the day.
Retail sales in the U.S. sharply increased in July, tripling economists' expectations with a growth of 1.0%. This indicates a resilient American consumer, marking the first positive news following a disappointing monthly jobs report that had caused widespread panic and sparked discussions of a potential recession next year. Combined with stronger-than-expected sales figures, the economy appears to be slowing down, but is not on the verge of a recession.
Yes, consumers have become more selective in their spending as they continue to face high prices and borrowing costs, but the latest retail sales data show a consistent willingness to spend. The retail sales report showed growth in 10 out of 13 categories. Auto sales jumped significantly. Electronics and appliances also posted solid growth. E-commerce sales grew at a more modest pace, which some experts attribute to significant discounts during this period as part of Amazon.com Inc.'s Prime Day and other promotions by Walmart and Target Corp.
Investors are now betting that Federal Reserve policymakers will start lowering borrowing costs as early as next month, as inflationary pressures gradually ease.
Additionally, data released yesterday showed that industrial production fell more sharply in July. Experts note that the 0.6% decline included the impact of Hurricane Beryl on refinery operations along the Gulf Coast. It is evident that production issues are also linked to the Federal Reserve's maintenance of the highest interest rates in the past two decades for over a year now. Surveys of individual factories have been more pessimistic. Reports indicated that manufacturing in New York state declined for the ninth consecutive month, while activity in the Philadelphia Federal Reserve region contracted for the first time since January.
As I mentioned earlier, this prompted sharp buying of the U.S. dollar. However, the fact that the Federal Reserve still intends to lower interest rates in September of this year continues to be priced in, which was taken advantage of by buyers of risk assets, who bought them at more attractive levels.
EUR/USD Technical Outlook
As for the current technical picture of EUR/USD, buyers now need to focus on reclaiming the 1.1020 level. Only this will allow targeting a test of 1.1050. From there, the pair could reach 1.1080, but doing so without support from major players will be quite challenging. The most distant target is the 1.1110 level. In case of a decline, I expect significant action from buyers only around the 1.0985 lvel. If there is no activity there, it would be wise to wait for a retest of the 1.0950 low or open long positions from the 1.0910 level.
GBP/USD Technical Outlook
As for the current technical picture of GBP/USD, pound buyers need to reclaim the nearest resistance at 1.2885. Only this will allow targeting 1.2910, above which breaking through will be quite challenging. The most distant target is the 1.2940 area, after which we could talk about a sharper rally in the pound towards 1.2975. In case of a decline, the bears will try to regain control at 1.2860. If successful, breaking through this range will deal a serious blow to the bulls' positions and push GBP/USD down to a minimum of 1.2830 with the prospect of reaching 1.2800.
