Key Takeaways
- US July retail sales dropped 0.6%, cracking the growth story and impacting Dollar’s momentum.
- DXY is testing key support levels, as recent economic indicators suggest reduced near-term macro support.
- Markets expect the Fed to hold interest rates steady in September after this week’s soft data.
- CAD broke below 1.39 supported by stronger Canadian data, as yield spreads compress and data relative to US macro improves.
- EUR/USD remains rangebound with limited directional conviction despite supportive Eurozone data.
USD: Retail sales dent Dollar momentum
July retail sales gave the dollar a fresh growth problem. Headline sales fell 0.6% m/m, well below expectations for a 0.1% gain, while June was revised to a modest 0.2% increase. The weakness was broader than autos, with ex-auto sales down 0.3% and sales excluding autos and gas down 0.2%. The control group dropped 0.4%, which matters most for consumption tracking.
That shifts the post-CPI story from inflation relief to demand concern. CPI came in line, PPI was soft, and retail sales now suggest households are losing momentum after a stronger spring. The Fed’s concern was that it might need to hike into a resilient consumer. This report makes that assumption less comfortable.
Markets are responding by dialing back the September hike risk with more conviction. The front end already softened after CPI and PPI, and the retail miss adds another reason to expect a hold rather than another hike. Credit markets have been more relaxed, with issuance strong and spreads still tight, suggesting investors are not pricing a hard stop. But for FX, the dollar has lost another piece of the growth support that helped cushion it earlier this summer.
DXY is trading near 99.57, down on the day and testing the post-payrolls floor around 99.50. A sustained break would bring 99.20 into view, and then the May lows near 98. Hormuz headlines and sticky long-end yields can still limit the downside, especially if oil keeps rising. But after weak payrolls, in-line CPI, soft PPI and now weaker retail sales, the dollar is running out of near-term macro support.
CAD: Breaks below 1.39
USD/CAD has broken below 1.39 for the first time since early June, with the Loonie helped by a better Canadian data run and another soft US demand print. Canada’s June manufacturing sales rose 0.1% to C$78.8bn, beating expectations for a small decline, while wholesale sales jumped 2.8% to C$92.5bn. The chart captures the broader shift: Canadian data momentum has turned higher relative to the US, and USD/CAD has followed that spread lower.
The manufacturing details were better than the headline. Petroleum and coal products fell 14.1%, but excluding that sector, factory sales rose 2.6%. Chemicals rose 6.0%, transportation equipment gained 2.8%, and unfilled orders hit a record C$131.8bn. Wholesale volumes also reached a record high, led by machinery and equipment, which points to firmer underlying activity.
Rate spreads continue to do the mechanical work for CAD. The US-Canada two-year yield spread has compressed to around 120bp as US yields fell after weak retail sales, while Canadian front-end yields have held up better on stronger domestic data. That spread compression has been one of the clearest drivers of the move from above 1.42 in late June to the high-1.38s today. It also makes the Loonie less dependent on oil for support.
The August 19 tariff deadline remains the main near-term risk. Canada and the US are trying to reach an interim deal before threatened 50% tariffs on roughly US$20bn of Canadian exports take effect, but any agreement still needs to survive the final political review. A credible deal could push USD/CAD toward 1.37 to 1.38, while tariff escalation could trigger a fast rebound above 1.40. For now, CAD has the better data momentum, the better spread impulse and the better positioning setup.
EUR: Rangebound, lacking conviction
EUR/USD remains stuck in a narrow range despite another soft US inflation report, highlighting a recurring theme this summer: the absence of conviction rather than the presence of a strong directional story.
A low-volatility environment continues to dominate FX markets. While that would normally be supportive of risk-taking, it arguably works against the euro. With yield volatility subdued and carry trades back in favour, investors have increasingly gravitated toward higher-yielding currencies, limiting the euro’s relative appeal despite an improving Eurozone backdrop.
Recent data have been supportive. Eurozone growth has held up better than expected, while inflation remains firm enough to keep alive expectations of further ECB tightening later this year. Yet the euro has struggled to capitalise. Markets are already close to pricing a full 25bp ECB hike next month, leaving limited scope for additional euro-positive repricing from the rates channel.
Instead, EUR/USD continues to take its cue from the dollar side of the equation, which has shrugged off the benign inflation prints this week.
Technically, the euro remains trapped beneath key resistance around 1.16, while support around 1.15 continues to hold. Today’s revised Q2 Eurozone GDP is unlikely to alter that picture, with no significant revision expected from the previously reported 0.4% quarter-on-quarter expansion.
Market snapshot
Table: Currency trends, trading ranges & technical indicators
Key global risk events
Calendar: August 10 – 14
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
