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The Euro has started to consolidate after finding support on better than expected growth GDP figures reaching as high as 1.4282. The German economy unexpectedly grew by 0.3% as stimulus and rate cuts helped the region's largest economy end its worst recession since WWII.

Talking Points
• Japanese Yen: Weaker On Rising Optimism
• Pound: Bouncing From Technical Support
• Euro: Germany and France Show Growth
• US Dollar: US Retail Sales on Tap

Euro Finds Support As Germany and France Show Growth, Will U.S. Retail Sales Continue Broader Optimism?

The Euro has started to consolidate after finding support on better than expected growth GDP figures reaching as high as 1.4282. The German economy unexpectedly grew by 0.3% as stimulus and rate cuts helped the region's largest economy end its worst recession since WWII. An equal improvement in France nearly pulled the entire economic region out if recession as it only contracted by 0.1% versus expectations of 0.5%. Negative growth from Italy, Austria and the Netherlands helped dragged the broader reading lower and slowed Euro gains.

The ECBs monthly bulletin was also released today and forecasted that growth would return to the euro-zone economy by next year. They would state looking ahead into next year, after a phase of stabilisation, a gradual recovery with positive quarterly growth rates is expected. The surprising GDP figures is putting a hole in the argument that Europe will lag the U.S. in a recovery and could continue to add Euro support. The ECB is expected to raise rate as soon as they deem feasible as they look to adhere to their price stability mandate. We could see the EURUSD look to test resistance at 1.446-the yearly high if optimism continues.

The Pound has started to rise after finding support at the 50-Day SMA at 1.6442. The pair is looking to erase its losses that ensued following the BoE's announcement of additional quantitative easing. We may still see the expected increase in supply of sterling weigh on the pair, but prevailing optimism and risk appetite remains supportive. A break back above the 20-Day SMA today of 1.6582 signals that there is still more upside potential with possible resistance at 1.6834-8/7 high.

The dollar has been under pressure throughout overnight trading as it continues to be weighed by strong risk appetite. We may continue to see the greenback trading heavy as U.S. retail sales are forecasted to have risen by 0.8% in July following a 0.6% gain the month prior which saw gains in automobile and gasoline purchases. We have started to see prices at the pump stabilize so the impact from those purchases should be minimal but with the government's cash for clunkers program car sales may have remained firm. However, the ICSC chain store sales report showed a 5.0 decline from a year ago as demand remains relatively weak. However, consecutive months of gains in retail sales could ease concerns over future demand and raise the outlook for growth. Initial jobless claims will also present event risk with a mild improvement expected.

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To discuss this report contact John Rivera, Currency Analyst: jrivera@fxcm.com