Forex Market: EUR/USD retreats from three-week highs as Draghi warns ECB will ease monetary policy

The euro retreated from the strongest level in more than three weeks against the US dollar, after European Central Bank President said euro’s strength “requires further monetary stimulus.”

EUR/USD hit a session low at 1.3816 at 09:00 GMT, after which consolidation followed at 1.3824, losing 0.44% on a daily basis. Support was likely to be received at April 9th low, 1.3780, while resistance was to be met at April 11th high, 1.3905, also the pair’s strongest since March 19th.

Demand for the 18-nation common currency was pressured after ECB President Mario Draghi commented on Saturday that further appreciation of the currency will result in looser monetary policy. Draghi reiterated his recent comments that the exchange rate is not part of the political prerogatives of the ECB, but he is watching it “with attention”.

“I’ve always said that the exchange rate is not a policy target, but it’s important for price stability and growth,” Draghi said in Washington on April 12, cited by Bloomberg. “And now, what has happened over the last few months, it’s become more and more important for price stability.”

Both, French Prime Minister Manuel Valls and his Spanish colleague, Mariano Rahoy criticized the ECB last week for not taking action against the strong exchange rate of the euro, which according to them stumbles the economic recovery in the euro zone.

Industrial production in the euro zone rose 0.2% in February from the previous month, in line with analysts’ estimates, data by Eurostat showed today. In January, industrial output unexpectedly declined 0.1%. On year-over-year basis, industrial production increased 1.7% in February, exceeding analysts’ projections of a 1.5% gain. In January, the industrial output rose 2.2%, which was higher than previously reported.

Meanwhile, retail sales in the United States probably increased 0.8% in March on a monthly basis, according to the median forecast by experts. In February sales rose 0.3%. The report on retail sales reflects the dollar value of merchandise sold within the retail trade by taking a sampling of companies, operating in the sector of selling physical end products to consumers.

US core retail sales (retail sales ex autos) probably rose 0.5% in March compared to a month ago, following a 0.3% increase in February. This indicator removes large ticket prices and historical seasonality of automobile sales. The official report is due out at 12:30 GMT on Monday.
A larger than expected increase in sales will heighten the appeal of US dollar.