EUR/USD Outlook – Pressing Higher as the US Dollar Loses Its Shine

[MongiIG]

Aug 1, 2022 | DailyFX
Nick Cawley, Strategist

EUR/USD Price, Chart, and Analysis

• German retail sales slump – the largest drop in three decades.
• Eurozone manufacturing PMI falls deeper into contraction.

German retail turnover in June was down 1.6% on the previous month and was 8.8% lower compared to June 2021, the largest decline in year-on-year turnover since the series began in 1994, according to the German Federal Statistics Office, Destatis. Also released today, the final S&P Global German Manufacturing PMI confirmed that Europe’s largest economy was in contraction territory for the first time in over two years with sharp falls in new orders weighing on factory production. According to Phil Smith, economics associate director at S&P Global Market Intelligence,

The potential for a shortage in gas supplies has German manufacturers seriously worried about the outlook for production in the coming year. Goods producers' expectations turned negative back in March, and have deteriorated in almost every month since then as downside risks to the sector's outlook continue to build.

The Eurozone economic calendar is fairly light this week leaving the EUR/USD likely to be steered by the US dollar. The greenback has drifted lower since mid-July after the US dollar basket (DXY) printed a 109.02 high. US Treasury yields have fallen over the last couple of weeks as investors look through the current round of sharp US rate hikes and begin to price-in US rate cuts in Q2 2023. US dollar weakness however will be tempered in the short-term by the yield differential against a range of other G7 countries but with other major central banks playing catch-up and hiking rates sharply, this differential will narrow over the coming weeks and months, weakening a range of USD-pairs.