Crushing austerity measures are sapping European consumers’ purchasing power, the latest Euro-zone Retail Sales report has shown. Despite surprising growth of 0.6 percent in May from April, sales remain lower overall with the yearly figure showing contraction of 1.7 percent. On top of the mixed readings for May, we note that the April figures were revised lower as well: the monthly figure was dropped lower to -1.4 percent from -1.0 percent; and the yearly figure was dropped lower to -3.4 percent from -2.5 percent.
The short-term bounce in sales may is likely to be short-lived, however, as the country’s that provided the support for the stronger Euro-zone figure are under immense pressure to further consolidate their deficits – typically, this involves higher taxes (and thus lower consumer spending) and lower government spending. French sales increased by 1.2 percent in May from April, while Irish and Spanish sales increased by 1.7 percent and 1.2 percent, respectively, over the same period. Similarly, Portuguese Retail Sales grew by 2.9 percent in May. In sum, any further efforts by these countries to fight the crisis will likely result in trimmer sales figures going forward.
EURUSD 1-minute Chart: July 4, 2012
Charts Created using Marketscope – Prepared by Christopher Vecchio
In the wake of the release, the EURUSD perked up if only slightly during the thinner European session today (with US markets closed, volatility and volume have been thinner and lighter across the globe this week and especially on Wednesday), trading up just a few pips from 1.2584. However, as market participants digested the data, the EURUSD sold off slightly, down to as low as 1.2579, at the time this report was written.
Undoubtedly, the German 5-year note auction may have influenced price action following the release, which showed the strongest demand for German debt in all of 2012. The high bid/cover ratio of 2.7 suggests that investors continue to scramble for safety despite the ‘progress’ achieved at the Euro-zone Summit last week.
--- Written by Christopher Vecchio, Currency Analyst
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