EUR/USD retreats from six-week highs on declining Euro zone industry output, US data

The euro pulled back from six-week highs against the US dollar, as data showed industrial production in the Euro zone contracted in October.

Having hit the strongest level in six weeks on Wednesday, EUR/USD traded at 1.3758 by 14:48 GMT, losing 0.2% on a daily basis. Support was likely to be received at December 11th low, 1.3742, while resistance was to be met at October 29th high, 1.3813.

According to data by Eurostat, the industrial output in the 17-nations common area declined 1.1% in October from a month earlier. Median analysts estimate predicted the industrial production will rise 0.3% this month. In September, the industrial output was revised to a 0.2% decline, compared to initially estimated drop of 0.5%. On annual basis, output in the industry sector added mere 0.2% in October, short of analysts expectations for a 1.1% gain and after it gained 0.2% in the previous month. The report showed the decline in industrial production was mainly driven by a 2.4% decrease in production of durable consumer goods and a 4% drop in energy production.

“While there is an economic recovery in the euro area, the momentum is slowing, but for the euro to take a sustained hit to the downside we definitely need the ECB to really move to a more dovish message,” said Alvin Tan, a London-based director of foreign-exchange strategy at Societe Generale SA, cited by Bloomberg.

The ECB decided at its meeting on December 5th to keep the main refinancing rate unchanged at 0.25 percent, while ECB President Mario Draghi had said that borrowing costs will stay low for an extended period of time.

The euro was the best performer among 10 developed-nation currencies, tracked by Bloomberg Correlation-Weighted Indexes, gaining 9.5% in the past year.

Vitor Constancio, ECB Vice-president, said on Wednesday that there is sufficient ECB-eligible collateral in each of the 17 Euro zone countries, which means banks can easily increase the use of its funding if they wished to do so.

“I can tell you, there is eligible collateral in all countries, in all banking sectors right now that they could use to come to us and get very cheap funding,” Constancio said at an event at the Goethe University Frankfurt, cited by Thomson Reuters.

The ECB Vice-president expressed his hope that lending to the economy will increase once economic recovery gains momentum and added that the ECB does not have much power to influence how banks use cash.

Meanwhile, the US released a string of mixed data, including increasing retail sales in November, but also higher-than-expected number of initial jobless claims.

The US Labor Department produced a report, showing that the number of people, who filed for unemployment assistance in the week ended December 7th increased to the highest level in two months, reaching 368 000 people. Analysts projected that the initial jobless claims in the same week will account for 320 000, compared to preceding weeks upwardly revised 300 000 from initially estimated 298 000.

A separate report by the US Commerce Department showed an increase of 0.7% in retail sales for November, higher than analysts forecasts of a 0.6% gain. Retail sales less autos, or core retail sales as they are better known, rose 0.4% over the analysts forecasts of a 0.2% increase. In September core retail sales rose by upwardly revised 0.5% from an initial estimate of 0.2% gain.

Demand for the greenback was supported by speculations that an agreement on a two-year US budget deal could prompt the Fed to taper its stimulus program, which tends to devalue the US dollar. Central bankers are set to reconvene next week. According to 34% of economists, participated in a Bloomberg survey on December 6th, the FOMC may begin to scale back its 85-billion-USD monthly asset purchases at the committee’s policy meeting on December 17th-18th rather than wait until January or March.

Elsewhere, having hit its weakest level since November 2011 on Wednesday, USD/CHF traded at 0.8876 at 10:43 GMT, gaining 0.14% for the day. Support was likely to be received at December 11th low, 0.8840, also the lowest since November 4th 2011, while resistance was to be encountered at December 10th high, 0.8908.