special reports

Higher U.S. Retail Sales Could Spark Optimism and Weigh on The Dollar

Tuesday, 14 July 2009 04:07:50 GMT  |  John Rivera, Currency Analyst

U.S. Advance Retail Sales are forecasted to rise by 0.4% in June following the 0.5% gain the month prior.

Fundamental Outlook

U.S. Advance Retail Sales are forecasted to rise by 0.4% in June following the 0.5% gain the month prior. Consumers are starting to increase their purchases on non-discretionary items. Discounts and government incentives are also helping lift automobile sales which can significantly contribute to the headline number. Last month saw a surge in gasoline receipts, which may regress this month as prices have started to stabilize. We could also see a pick up in electronics after three consecutive months of negative sales. The category has seen items like cell phones and MP3 players become less discretionary. However, last month’s 1.3% gain in building materials may be difficult to duplicate as waning optimism may have limited new construction. Indeed, the overall growing pessimism may limit the positive reaction to the positive consumer consumption print and may generate limited price volatility. Nevertheless, domestic demand is a critical component to growth and any gain will be viewed as a positive. If the dollar continues its current negative correlation to risk appetite then we could see a firmer EUR/USD which would contradict the short-term bearish technical outlook.

 

Technical Outlook

 

Euro / US Dollar                      Daily

 

EUR/USD – The market remains locked in a multi-day consolidation since positing fresh 2009 highs by 1.4340 back in early June. While our shorter term outlook has favored the bearish side (we are short from 1.4180), the medium-term outlook is more uncertain from here and it remains to be seen whether we are looking to put in a medium-term lower top by 1.4340, or a medium-term higher low by 1.3750.  A break back below 1.3750 would signal a resumption of the broader bearish structure and expose a fresh drop to the 1.3000 area, while a sustained break above 1.4340 would bring 1.4720-1.4870 back into focus.

 

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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