…if you drop it from high enough. EUR/USD has been dropped from 1.4720 and staged a modest dead-cat bounce from 1.3170 to 1.3335 overnight as Asian equities staged a rally and Europe opened firmer. Poor German GDP data (implying a contraction of up to 2% in Q4) helped dampen sentiment toward te euro and return focus to shrinking interest rates differentials.
US retail sales are due in under an hour and are expected to illustrate the deep contraction underway in the US late in 2008. A drop of 1.2% is expected on the headline level. -1.3% is seen stripping out autos. We’d expect poor retail sales to amplify the trend toward risk aversion, resulting in a stronger dollar and JPY.