Dollar May Rise as US Retail Sales Drop Triggers Risk Aversion

Talking Points

• US Retail Sales Drop May Trigger Pre-Greek Election Risk Aversion
• Euro at Risk as Industrial Output Shrinks, Stoking ECB Rate Cut Bets

The US Dollar was little changed against its top counterparts in overnight trade, with the major currency pairs in consolidation mode as markets digest recent volatility. The increasingly proximity of the weekend’s Greek election – where the country’s membership in the Eurozone appears to hang in the balance – seems likely to boost the greenback as investors turn defensive and risk aversion stokes haven demand.

Today’s US Retail Sales report may serve as the trigger. Expectationscall fora 0.2 percent decline, marking the first contraction in a year. The critical unknown in the global economic growth outlook is the degree to which a still choppy North American recovery can offset headwinds from weakness in Europe and Asia. Taken against a backdrop of fading QE3 bets after last week’s Ben Bernanke testimony disappointed stimulus hopes, this means a soft print stands to weigh on sentiment.

Eurozone Industrial Production figures are in focus on the European docket, with forecasts pointing to the largest drop in seven months in April. Evidence of increasingly anemic regional growth may begin to fuel ECB rate cut expectations,applying downward pressure to front-end yields and weighing on the Euro.

Asia Session: What Happened

Euro Session: What to Expect

Critical Levels

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

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