- U.S. Advance Retail Sales to Rise for Second-Consecutive Month.
- Household Spending Has Failed to Meet Market Forecast the Last Four Straight Prints.
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Trading the News: U.S. Advance Retail Sales
Another 0.2% rise in U.S. Retail Sales may heighten the appeal of the greenback and spur a larger pullback in EUR/USD as Fed officials look for a faster rate of growth in the second-quarter of 2015.
What’s Expected:
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Why Is This Event Important:
The Fed may keep the door open for a mid-2015 as the central bank anticipates a pickup in economic activity, and signs of a stronger recovery may foster a more bullish outlook for the greenback as the committee remains on course to normalize monetary policy.
Expectations: Bullish Argument/Scenario
| Release | Expected | Actual |
|---|---|---|
| Unemployment Rate (APR) | 5.4% | 5.4% |
| Consumer Credit (MAR) | $15.800B | $20.523B |
| U of Michigan Confidence (APR A) | 94.0 | 95.9 |
The expansion in private-sector credit along with the pickup in household confidence may generate a strong retail sales report, and a better-than-expected print may push EUR/USD back towards the 1.1000 region as it boosts interest rate expectations.
Risk: Bearish Argument/Scenario
| Release | Expected | Actual |
|---|---|---|
| Average Hourly Earnings (YoY) (APR) | 2.3% | 2.2% |
| Personal Income (MAR) | 0.2% | 0.0% |
| Consumer Price Index Core (MAR) | 1.7% | 1.8% |
Nevertheless, U.S. households may continue to scale back on spending amid easing discounts paired with stagnant wage growth, and a dismal figure may spur a bearish reaction in the greenback as it raises the risk for a further delay in the Fed’s normalization cycle.
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How To Trade This Event Risk(Video)
Bullish USD Trade: U.S. Retail Spending Climbs 0.2% or Greater
- Need red, five-minute candle following a positive print to consider a short EUR/USD trade.
- If market reaction favors a bullish dollar trade, sell EUR/USD with two separate position.
- Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward.
- Move stop to entry on remaining position once initial target is hit; set reasonable limit.
Bearish USD Trade: Household Consumption Disappoints
- Need green, five-minute candle to favor a long EUR/USD trade.
- Implement same setup as the bullish dollar trade, just in reverse.
Potential Price Targets For The Release
EUR/USD Daily Chart
Chart - Created Using FXCM Marketscope 2.0
- EUR/USD remains at risk for a further advance as the bullish momentum on the Relative Strength Index (RSI) continues to take shape.
- DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains net-short EUR/USD since April 9, with the ratio currently standing at -1.88.
- Interim Resistance: 1.1520 (61.8% expansion) to 1.1532 (February high)
- Interim Support: 1.0970 (38.2% expansion) to 1.1000 (50% retracement)
Read More:
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Impact that the U.S. Retail Sales report has had on EUR/USD during the previous month
| Period | Data Released | Estimate | Actual | Pips Change | Pips Change |
|---|---|---|---|---|---|
MAR 2014 | 04/14/2014 12:30 GMT | 1.1% | 0.9% | +60 | +6 |
March 2014 U.S. Advance Retail Sales
Despite the weaker-than-expected print, U.S. Retail Sales increased 0.9% in March to end the longest stretch of decline since 2012. The rise was largely driven by greater demand for motor vehicles and parts, while discretionary spending on clothing increased 1.2% during the same period after holding flat in February. Even though the Fed remains on course to remove the zero-interest rate policy (ZIRP), the ongoing weakness in private-sector consumption, one of the leading drivers of growth and inflation, may further delay the Fed’s normalization cycle in an effort to encourage a stronger recovery. EUR/USD briefly climbed above the 1.0700 handle following the lackluster release, but the pair consolidated throughout the North American trade to end the day at 1.0624.
--- Written by David Song, Currency Analyst and Shuyang Ren
To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.
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