Dollar Struggles Despite Strong US Retail Sales, EUR/USD Eyes Key 1.1829 Resistance – Action Forex

Dollar remained under pressure today even after U.S. retail sales came in stronger than expected. While the data trimmed expectations of back-to-back Fed cuts in October slightly, with odds dipping yet still holding near 78%, it did little to support the greenback. Markets appear more focused on front-running a dovish outcome from tomorrow’s FOMC decision as the two-day meeting gets underway.

Attention in FX markets is firmly on whether EUR/USD can decisively break through the 1.1829 resistance. Sustained move higher would reinforce the prevailing bearish tone for Dollar and could open room for further gains in European majors.

Overall in the forex markets, Swiss Franc led the pack today. Geopolitical concerns deepened after Romania reported a violation of its airspace by Russian drones, heightening risks of conflict spillover into NATO territory. US President Donald Trump sharpened his stance, directly calling Russia the aggressor in Ukraine—a shift that signals harder U.S. positioning toward Moscow.

Commodity-linked currencies lagged despite the broader risk-on mood. Aussie and Kiwi held steady but underperformed their European peers. The softer inflation print from Canada reinforced expectations of a BoC rate cut tomorrow, but Loonie’s resilience highlights that much of the easing story was already priced in.

In Europe, at the time of writing, FTSE is down -0.34%. DAX is down -0.66%. CAC is down -0.12%. UK 10-year yield is up 0.03 at 4.665. Germany 10-year yield is up 0.026 at 2.719. Earlier in Asia, Nikkei rose 0.30%. Hong Kong HSI fell -0.03%. China Shanghai SSE rose 0.04%. Singapore Strait Times fell -0.02%. Japan 10-year JGB yield rose 0.002 to 1.604.

US retail sales rise 0.6% mom in August, beat forecasts with broad gains

U.S. retail sales surprised to the upside in August, rising 0.6% mom to USD 732.0B, well ahead of expectations for a 0.2% mom increase. Core categories also posted robust results, with sales excluding autos up 0.7% mom to USD 592.3B and sales excluding gasoline up 0.6% mom to USD 680.3B. Sales excluding both autos and gasoline gained 0.7% mom to USD 540.1B, pointing to broad-based consumer strength.

The latest figures confirm resilience in household spending despite high borrowing costs and moderating labor market conditions. Over the June–August period, total retail sales rose 4.5% yoy, extending steady growth and highlighting the consumer’s role as a key driver of U.S. activity.

Canada CPI edges higher to 1.9% in August, core measures ease

Canada’s headline CPI rose to 1.9% yoy in August, up from 1.7% yoy in July but slightly below market expectations of 2.0% yoy. The increase was largely due to a smaller year-on-year drop in gasoline prices, which fell -12.7% yoy in August compared with -16.1% yoy in July. Excluding gasoline, inflation rose 2.4% yoy, moderating slightly from the consistent 2.5% yoy pace of recent months.

Underlying price pressures showed further signs of cooling. CPI median measure held steady at 3.1% yoy, while the CPI trimmed eased from 3.1% yoy to 3.0% yoy, both matching expectations. CPI common measure slowed to 2.5% yoy, undershooting forecasts of 2.6% and marking a softening in broad-based inflation.

German ZEW sentiment improves, outlook brighter for exports despite weak base

Germany’s ZEW Economic Sentiment index rose more than expected in September, climbing from 34.7 to 37.3 against forecasts of 25.0. The improvement highlights growing optimism among financial market experts, particularly toward export-oriented sectors. However, Current Situation index deteriorated further from -68.6 to -76.4, missing expectations of -65.0.

For the Eurozone, ZEW sentiment index also improved, rising from 25.1 to 26.1, ahead of consensus at 20.3. Current Situation measure edged higher by 2.4 points to -28.8.

ZEW President Achim Wambach noted that while the sentiment indicator has stabilized, “the economic situation has worsened” and significant risks remain. He cited uncertainty over U.S. tariff policy and Germany’s upcoming “autumn of reforms.” Outlooks have improved for autos, chemicals, pharmaceuticals, and metals, but sentiment for these sectors remains in negative territory, showing recovery prospects are fragile.

Eurozone industrial output rises 0.3% mom, energy drag offsets goods gains

Eurozone industrial production rose 0.3% mom in July, missing expectations of a 0.5% mom gain. Output was supported by intermediate goods (+0.5%), capital goods (+1.3%), and consumer goods, with durable and non-durable production up 1.1% and 1.5% respectively. However, a sharp -2.9% decline in energy output capped overall growth.

Across the wider EU, industrial production increased 0.2% mom on the month. Croatia led gains with a 2.6% rise, followed by Hungary and Slovenia at 2.1% each, while steep drops were recorded in Estonia (-5.5%), Malta (-4.7%), and Sweden (-3.9%).

UK job losses continue, pay growth still strong

UK labor market data for August showed further signs of strain, with payrolled employment falling by -8k on the month, extending a steady decline since the peak in Q3 2024. Claimant count rose by 17.4k, less than expected 20.3k. Median monthly pay rose 6.6% yoy, up from July’s 6.0%, underlining persistent wage pressures.

In the three months to July, unemployment rate held steady at 4.7%, in line with forecasts. Average earnings excluding bonuses eased slightly from 5.0% to 4.8%, while including bonuses ticked higher from 4.6% to 4.7%. Overall, the figures show employment losses are continuing, but wage growth remains firm enough to keep the BoE cautious on policy.

RBA’s Hunter: Inflation near target, monitoring consumer strength

RBA Assistant Governor Sarah Hunter said today the central bank is “close to getting inflation to target,” with risks around the outlook now appearing “balanced”. She emphasized that monetary policy works with a delay and must remain forward looking.

Hunter also noted that household spending has “picked up a bit,” with consumption showing signs of improvement and the broader position “beginning to turn over.” She added the RBA is “very closely monitoring” the underlying strength of consumer demand as it seeks to keep the economy near full employment.

July’s CPI outcome was partly affected by timing of rebates, she explained, while core inflation appears broadly in line with forecasts.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.1728; (P) 1.1751; (R1) 1.1786; More…

Intraday bias in EUR/USD remains on the upside with immediate focus on 1.1829 high. Firm break there will resume larger up trend to 1.1916 projection level next. On the downside, below 1.1757 minor support will turn intraday bias neutral again first.

In the bigger picture, rise from 0.9534 (2022 low) long term bottom could be correcting the multi-decade downtrend or the start of a long term up trend. In either case, further rise should be seen to 100% projection of 0.9534 to 1.1274 from 1.0176 at 1.1916, and further to 1.2 psychological level. This will remain the favored case as long as 55 W EMA (now at 1.1215) holds.