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Declining U.S. Retail Sales Would Validate Bullish EUR/USD Technical Outlook

Friday, 12 December 2008 08:09:56 GMT  |  John Rivera, Currency Analyst

U.S retail sales are expected to decline another 2.0% after a record 2.8% decline in October. Last month saw a 14% drop in gasoline receipts lead declines across the board, which could be repeated as gasoline prices continue to fall.

Fundamental Outlook

U.S retail sales are expected to decline another 2.0% after a record 2.8% decline in October. Last month saw a 14% drop in gasoline receipts lead declines across the board, which could be repeated as gasoline prices continue to fall. The economy also gave back over 500,000 jobs in November which will curb consumer spending and may lead to a bigger than expected decline. Americans continue to retrench as the growth outlook for 2009 continues to dim and the troubles of the U.S. auto industry loom. Indeed, the University of Michigan consumer confidence survey is expected to fall to a new 28 year low with a reading of 54.5. The past two months has seen dour U.S. fundamental data provide dollar support as it has sparked safe haven flows into U.S. Treasury’s. However, recent price action has shown that the fundamentals are starting to drive price action as other countries have caught up with the Fed in easing monetary policy. Therefore, another month of declining consumption could continue recent greenback weakness which would support the bullish EUR/USD technical outlook. A break above staunch resistance at 1.300 has technicians targeting a move beyond 1.4000 as former resistance turns into support.

 

Technical Outlook

The bearish triangle scenario is invalidated as I was clearly wrong to maintain a bearish bias at resistance the past few days.  It is much more likely that a bear rally is underway towards the mid 1.40’s, if not higher.  Resistance is not until the downward sloping trendline, which is at 1.36 today and decreases about 23 pips per day.  Former resistance in the 1.3150 area is probable support next week.

 

For More Technical Analysis Visit the Daily Technical Report

 

To discuss this report contact John Rivera, Currency Analyst: jrivera@fxcm.com

 

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