Retail Sales Figure Pressures Company Profits, Dampening Investor Confidence

The US Dollar declined to a new 9-month low against most currencies as the Dollar was again pressured by the latest inflation figures. The US Dollar Index declined to a new low before finding support at 101.60. However, the price quickly became oversold as the price crossed a major psychological price level. As a result, the price was corrected on all occasions back to the previous price ranges. 

Global indices are also seeing a change in trend after the latest announcement. This includes the SNP500, NASDAQ, and Dow Jones. The announcement also affects European Equities such as the DAX which we will cover below.

DAX - Will Investor Confidence Fall after the First Earning Reports?

The German DAX heads lower for a second day after a 2-week bullish trend which has even overshadowed US equities. Investors should note that yesterday’s US data also affected European stocks and the worldwide investor sentiment towards the global stock market. The DAX's price is largely influenced by 3 major factors; the strengthening Euro, the latest inflation figures, and of course the latest company earnings. 

Over the past 3 days, the instrument formed a triple-top pattern and a clear resistance point. The resistant point formed between 15,250 - 15,268 and shows a clear area where demand declines. After the triple top, the price declined by 1.16% and officially crossed the previous low to create a lower low. This can indicate a further downward trend which is also indicated by moving averages and the Stochastic Oscillator. 

DAX 1-Hour Chart on January 19th

Yesterday's inflation figures supported the possibility of a weaker monetary policy or rate cuts toward the end of the year. Overall the announcement was positive for the stock market. However, the Retail Sales figure was a major concern for all companies. The Retail Sales figure came in at -1.1% which is the lowest since January 2022. Poor sales and consumer demand can significantly pressure company profits, dividends, and investor sentiment. 

Earnings season has also not been positive for global stocks. The week started with the release of Goldman Sachs’s earning report which was a significant decline as expected. The price has declined by almost 3% as a result of the report. Yesterday Charles Schwab also released their profits which missed targets leading to another 3% decline. 

The current earnings and Retail Sales figure has dampened investor confidence in the stock market in general. However, the developments within the European economy continue to support European-based equities, specifically the DAX and CAC. The Governor of the Bank of France advised markets that inflation will peak in the first quarter of 2023 and then begin to decline to 2% in 2024. The Governor advised the prediction is mainly based on energy prices stabilizing. Overall this is positive for the DAX if indeed it does lead to lower interest rates or at least discontinued hikes. 

On the other hand, ECB Chief Economist Philip Lane gave a different opinion based on a restrictive monetary policy and regional budget cuts over the next 12 months. Monetary and fiscal pressure is known to constrain equities and consumer confidence. For this reason, investors will be monitoring the regulator's stance over the next 12 months. 

Bull investors are hoping that the current trend in the reports released so far will not continue. During this morning's European session, Procter and Gamble will release their earnings, which are expected to show a positive increase. In addition to this, Netflix will release its earnings after the close of the US trading session this evening. 

DAX 15-Minute Chart on January 19th 

EUR/USD Tumbles to a 9-Month Low

The price of the EUR/USD saw mixed price movements yesterday but ended the day on a slight decline. The price movement was largely influenced by the US economic releases that again supported a 25 basis point hike in February. In addition to this, the latest inflation announcement also supports a rate cut towards the end of the year as long as the current trend continues. 

The Producer Price Index read -0.5% which is 0.4% lower than the expected figure and the lowest since August after inflation peaked. The Core PPI came in as expected at -0.1%, which is also lower than the previous month. Overall the announcement was negative for the US Dollar as it shows that a more restrictive monetary policy may not be required based on the current data. 

You can also check out our latest technical analysis video below to get further information on technical analysis for the EUR/USD.

Summary:

• Yesterday’s Purchasing Price Index indicates a weakening monetary policy in 2023.
• The US Dollar saw mixed price movement after the latest inflation data but stocks saw a strong decline. 
• The Bank of France Governor advises the inflation rate is likely to decline closer to the bank's target in 2024. 
• Retail Sales figure in the US and Earning reports significantly lower investor sentiment towards the equities market.