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German Retail Sales on Deck

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German Retail Sales on Deck

German fundamentals will take centre stage once again Friday when the Federal Statistics Office reports on April retail sales. The monthly reading is expected to show retail revenues advanced 0.4 percent in April, following a decline of 0.7 percent the prior month.

Retail sales are used to gauge consumer confidence and willingness to spend money. These factors are especially important for Germany, which has relied on the domestic market for its recovery.

Germany continues to serve as the pillar of Eurozone recovery. Its economy accelerated 0.8 percent in the first quarter and 2.3 percent on a calendar-adjusted basis. By contrast, the French economy was flat in Q1, while Italy contracted 0.1 percent.

As Europe’s largest economy, Germany is considered the catalyst for growth in the region. A stronger German economy, it is hoped, will help peripheral nations rebound following years of contraction. To-date, however, Germany’s recovery remains mostly self-contained, as the nation of over 80 million has looked internally for recovery.

However, a recent Ifo survey suggested German businesses were pessimistic their country could maintain its current growth trend. Having been propped up almost exclusively by domestic demand, the German economy is forecast to slow down in the second quarter.

German data worried the markets earlier this week, as unemployment in May rose for the first time in six months. Although the unexpected rise was attributed largely to weather-related factors, it raised some concern that the domestic market – Germany’s main driver – could be slowing down.

Given that Eurozone GDP growth was only 0.2 percent in the first quarter and 0.9 annually – and that’s with an exceptional German reading – a slowdown in Germany could further diminish the chances of a stronger rebound for the currency region.

Adding to the Eurozone’s growth woes is chronically low inflation, which threatens to undermine the region’s fragile recovery. European Central Bank President Mario Draghi acknowledged earlier this week the Eurozone may be threatened by a deflationary cycle, one that would require immediate response from the central bank.

That response could come next week when the ECB meets to discuss monetary policy and set the interest rate.

The euro rose to an intraday high of 1.3625 against its US counterpart. By the afternoon session the EURUSD had given back most of its gains, settling at 1.3601. This represents a gain of 0.06 percent. Market analysts expect further debasement for the euro as German growth begins to moderate and the ECB introduces added stimulus.

The form that stimulus takes is yet to be determined. ECB officials are reportedly considering a negative deposit rate and quantitative easing, among other measures. The central bank has been unable to boost inflation with conventional methods. April marked the seventh consecutive month inflation was at less than half of the ECB’s target rate of just under 2 percent.

In other trading, the euro advanced versus the British pound, reaching an intraday high of 0.8152. The EURGBP pair consolidated at 0.8141, advancing 0.08 percent.

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