EUR/USD declines for a third day on Fed taper outlook

The euro edged lower against the US dollar on Wednesday after yesterday’s report on retail sales in the United States supported expectations that Fed may continue to pare back its monthly monetary stimulus throughout 2014.

EUR/USD touched a session low at 1.3611 at 09:02 GMT, after which consolidation followed at 1.3616, losing 0.45% for the day. Support was likely to be received at January 10th low, 1.3574, while resistance was to be encountered at January 14th high, 1.3699, also the pairs highest since January 2nd.

According to data by the Census Bureau, part of the US Department of Commerce, nations retail sales increased 0.2% in December, exceeding analysts’ expectations of a 0.1% increase. In November, retail sales gained 0.4%, after they have been revised downwards from earlier estimates of a 0.7% increase.

Core retail sales, which exclude sales of automobiles, rose 0.7% in December, after a downward revision to 0.1% from earlier estimates of a 0.4% increase in November. Retail sales are considered as a crucial indicator regarding the trend in consumer spending and overall economic development in the United States. Consumer spending has a key role as it accounts for almost 70% of the US economic growth.

The report provided support to greenback’s demand, as it favored the view that the Federal Reserve Bank may continue tapering during the year. Central bank’s policy makers said on December 18th that they will reduce monthly asset purchases to $75 billion from $85 billion, underscoring improving labor market conditions. The bank will probably continue to pare stimulus by $10 billion at each policy meeting before exiting the program in December, according to a Bloomberg News survey of 41 economists, conducted on January 10th. The Federal Open Market Committee is scheduled to meet next on January 28-29.

In addition, Fed President for Philadelphia Charles Plosser and Fed President for Dallas Richard Fisher, voting members of the Federal Open Market Committee this year, yesterday called for continued reduction of the Fed’s bond-buying program. Fisher said that he would strive to eliminate the program entirely “at the earliest practicable date”, while his colleague said he would prefer the stimulus program to be ended before late 2014.

Meanwhile, yesterday the euros demand was supported, after Eurostat reported the industrial production in the euro zone increased 1.8% in November, exceeding analysts’ projections for a 1.4% advance. The industrial production recovered from a 0.8% drop in October. Year-over-year, the euro zone production surged by 3 percent in November, which is more than double of the analysts’ estimates for a 1.4% increase.

On Monday, a report by Eurostat revealed the Spanish Business Confidence increased to 113.9 in the first quarter from 113 in the last quarter of 2013. The Business Confidence Indicator is based on a survey among managers of 8 000 companies, who are asked to assess the overall performance of their companies during the last quarter, as well as to share their expectations for the current quarter.

Elsewhere, AUD/USD touched a session low at 0.8908 at 7:10 GMT, after which consolidation followed at 0.8912, losing 0.60% for the day. Support was likely to be received at January 10th low, 0.8876, while resistance was to be encountered at January 14th high, 0.9054.