Euro Remains Depressed After Weak Eurozone Retail Sales And With US NFP On Tap

• EUR/USD extends losses to levels near 1.1170, from highs near 1.1270 on the previous day, hit by risk aversion.

• Eurozone Retail Sales dropped beyond expectations in September, adding bearish pressure on the Euro.

• Higher demand for safe assets amid the sell-off in equities and solid US data are keeping the US Dollar buoyed.

The Euro (EUR) accelerates its reversal on Friday, as Eurozone Retail Sales disappoint, while risk-aversion and market expectations of a strong US Nonfarm Payrolls report later in the day are supporting the US Dollar’s (USD) recovery. The EUR/USD pair trades near 1.1170 at the time of writing, down from highs near 1.1270 on Thursday, on track for a minor weekly gain

Retail consumption in the Euro Area dropped by 0.7% in September, according to data released by Eurostat on Friday, exceeding market expectations of a more moderate 0.1% decline, and following a 0.1% uptick in August. Year-over-year, Eurozone Retail Sales growth halved to 0.4% from August’s 0.8% growth, below the 0.6% consensus.

Before that, German data revealed that factory output grew 0.7% in September, beating market expectations of a flat reading and above August’s 0.1% growth. The Euro, however, failed to draw any significant support from these figures.

USD shines amid risk-off markets and positive US data

The safe-haven US Dollar has drawn support from the selloff in equity markets led by growing concerns about the AI sector. Chipmaker shares have plunged in the US and Asia, crushed by investors' fears that the Democratic sweep in the United States will result in tougher regulatory requests and cancellations in data-centre construction plans.

Strategists at OCBC argue that the broader environment, with “US growth still solid, inflation sticky and the Fed on track for further tightening (...) remains broadly USD supportive.”  

Against this background, the market has its eyes set on October’s Nonfarm Payrolls (NFP) report, due later on Friday. Previous labour data beat expectations this week; Jobless Claims fell to their lowest level in nearly four months last week, ADP employment increased well beyond consensus in October, and the JOLT report showed sharply higher job openings in September. If the NFP follows this trend, it might provide additional support to the USD.