Forex - Euro hits 1-week lows vs. stronger dollar

The euro fell to one-week lows against the broadly stronger dollar on Tuesday as U.S. retail sales data reinforced the view that the Federal Reserve will soon start to phase out its stimulus program.

EUR/USD hit 1.3236 during U.S. morning trade, the lowest since August 5; the pair subsequently consolidated at 1.3240, shedding 0.44%.

The pair was likely to find support at 1.3187, the low of August 7 and resistance at 1.3300.

The Commerce Department said U.S. core retail sales, which exclude automobile sales, rose 0.5% in July, compared to forecasts for a 0.4% increase. Core retail sales for June were revised up to 0.1% from a flat reading.

Overall retail sales rose by a seasonally adjusted 0.2% last month, just short of expectations for a 0.3% increase. Retail sales figures for June were revised up to a 0.6% gain from a previously reported increase of 0.4% the report said.

The euro briefly touched session highs earlier Tuesday after a report showed that the closely watched ZEW index of German economic sentiment rose to a five-month high of 42.0 in August from July’s reading of 36.3. Economists had forecast a reading of 40.0.

The index of the current economic situation for Germany rose to a one-year high of 18.7.

Meanwhile, the index of economic expectations for the euro zone was also higher, increasing to 44.0, the highest since April 2010, up from 32.8 in July.

The report said the first signs of an end to the recession in major euro zone countries had contributed to the increase.

A separate report showed that industrial production in the euro zone rose 0.3% in June from a year earlier, more than expectations for a 0.2% increase.

Elsewhere, the euro was higher against the weaker yen, with EUR/JPYadvancing 0.75% to 129.84.

The yen came under broad selling pressure following reports that Japan’s Prime Minister Shinzo Abe is looking at lowering the corporate tax rate as a way to offset a planned increase in sales tax.

The single currency was weaker against the pound, with EUR/GBP down 0.46% to 0.8566.

In the U.K., official data on Tuesday showed that the rate of consumer inflation eased down to 2.8% on a year-over-year basis in July, in line with economists’ expectations, from 2.9% in June.