Why is the Euro extending losses in risk-off markets despite upbeat German Industrial Production?

• Risk aversion pushes EUR/USD below 1.1200, extending its retreat from the previous day’s session highs near 1.1270.
• The Euro found no support despite German Industrial Production exceeding forecasts.
• The US Dollar remains supported as the equity sell-off drives demand for safe assets and US economic data stay firm.

Risk-averse sentiment is weighing on the Euro (EUR) for a second straight day on Friday, as a technology-led equity sell-off favours the US Dollar (USD). At the start of European trading, EUR/USD is hovering near 1.1180, below Thursday’s highs near 1.1270. The pair has been unable to benefit from the encouraging German Industrial Production figures published earlier in the day. 

September’s German factory output rose 0.7%, surpassing expectations of no growth and improving on August’s 0.1% increase, figures from Germany’s official statistics office showed. Automotive and pharmaceutical production accounted for most of the improvement. By contrast, output fell in construction and in machinery and equipment manufacturing.

Eurostat’s September Eurozone Retail Sales figures are due later in the day. Forecasts point to a 0.1% fall, reversing August’s 0.1% rise. Unless the release delivers an upside surprise, it is unlikely to offer the Euro much support.

Why are risk aversion and firm US data supporting the USD?

Mounting worries over the AI sector have fuelled an equity sell-off, strengthening demand for the safe-haven US Dollar. Across the US and Asia, chipmakers’ shares have slumped as investors fear that the Democratic sweep in the United States will bring tougher regulatory requirements and cancellations of data-centre construction plans.

In the assessment of OCBC strategists, the wider backdrop, with “US growth still solid, inflation sticky and the Fed on track for further tightening (...) remains broadly USD supportive.”  

Attention now turns to October’s Nonfarm Payrolls (NFP) report, scheduled for release later on Friday. Labour-market releases this week have already exceeded expectations: last week’s Jobless Claims dropped to their lowest in nearly four months, October’s ADP employment increase substantially surpassed consensus, and the JOLT report recorded a sharp rise in September job openings. A similar outcome in the NFP report might give the USD further support.