• EUR/USD edges up to the mid-1.1200s after bouncing from 17-month lows at 1.1160 on Monday.
• Eurozone Retail sales missed expectations, and German Factory Orders plunged in August.
• Oil prices have declined about 5% from last week's highs amid news that exports from Gulf countries are recovering.

The Euro (EUR) posts a mild recovery against the US Dollar (USD) on Tuesday, with the EUR/USD pair trading a few pips below 1.1250 at the time of writing, extending its rebound from the 17-month low, near 1.1160, hit on Monday. Eurozone Retail Sales and German Factory Orders data have disappointed, but a broader US Dollar pullback and a further decline in Crude Oil prices are providing some respite to the ailing single currency.

Eurozone Retail Sales bounced up 0.1% in August, after a 0.6% contraction in July, undershooting market expectations of a 0.2% gain, according to figures released by Eurostat earlier in the day. Year-over-year, retail consumption increased 0.8%, above the previous month’s 0.4% reading but also below the 1% market forecast. 

Before that, data released by Destatis revealed that German Factory Orders plunged 10.6% in August, following a 3.2% increase in July, largely exceeding the 1% decline seen in the previous month. The report highlights the decline in sales of transport equipment, such as aircraft, ships, trains and military vehicles, which fell 61% on seasonally adjusted terms after having doubled in July as the main reason for August's decline. Excluding large-scale orders, sales of all other items fell a mere 0.1%.

The Euro, however, is drawing some support from a reversal in Oil prices. Brent Crude has extended its decline below $98.00, nearly 5% below last week’s highs. Reports that Oil flows from Gulf countries have recovered sharply over the last few weeks have eased concerns about supply disruptions and provided some relief to the Eurozone's oil-importing economies.

Growing debt concerns and political uncertainty likely to limit Euro rallies

The Euro remains under pressure amid rising concerns about public finances, with the gap between France’s OAT yield and the German Bund at levels unseen since the 2009 crisis. France is also facing a political gridlock that discards any significant savings plan, at least until the presidential elections in 2027, and to make things worse, Spanish President Pedro Sanchez announced a snap election in November. If we add to this the fragility of Frederich Merz's cabinet in Germany, we obtain the picture of the uncertain political scenario that is keeping investors away from the Euro.

Against this backdrop, the European Central Bank (ECB) remains between a rock and a hard place, having to fine-tune its monetary policy. Further monetary tightening might add fuel to the government bonds sell-off. Inflation, on the other hand, is running at levels well above the 2% target and does not seem to retreat unless the Middle East improves radically, which adds a layer of uncertainty to the Eurozone's economic outcome.

In the US, ISM Services Purchasing Managers Index data released on Monday showed that business activity slowed down beyond expectations in September, as prices paid by businesses increase with demand still at high levels. The US Dollar, however, remains drawing support from the high US Treasury yields, which hit fresh multi-decade highs.