Trading the News:
What’s Expected
Time of release: 07/14/2009 12:30 GMT, 08:30 EST
Primary Pair Impact : EURUSD
Expected: 0.4%
Previous: 0.5%
Impact the
May 2009
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Retail sales in the U.S. rose 0.5% in May, which was in-line with expectations however, the outlook for personal spending remains bleak as households face a weakening labor market. The breakdown of the report showed gasoline receipts jumped 3.6% following the rise in oil prices, with demands for clothing rising 0.4% from the previous month, while department store sales slumped 0.7% during the month. The data encouraged an improved outlook for future growth as consumers continue to take advance of discounted prices however, the rebound in energy costs could hamper the outlook for private spending as households face a weakening labor market paired with tightening credit conditions. As economists speculate the unemployment rate to reach 10% this year, fears of a protracted downturn may continue to weigh on the market as Fed Chairman Bernanke anticipates the drop in wealth to ‘limit sales’ going forward. |
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April 2009
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Personal spending in the U.S. fell 0.4% in April amid expectations for a flat reading, and conditions are likely to get worse as the nation faces its worst economic downturn in over half a century. A deeper look at the report showed sales of electronic goods slumped 2.8% from the previous month, with discretionary spending on food and beverages falling 1.0%, while gasoline receipts slipped 2.3% from the previous month on higher oil prices. The data suggests households will continue to scale back on consumption as they face a weakening labor market paired with fears of a deepening downturn, and policymakers could be forced to take additional steps to shore up the economy as growth prospects deteriorate. Meanwhile, Treasury Secretary Tim Geithner held an improved outlook for the world’s largest economy, stating that ‘concerns about systemic risk has diminished, ‘ with credit conditions starting to ‘improve.’ |
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What To Look For Before The Release
Traders with access to market depth information via the FXCM Active Trader Platform may use it to gauge the potency of the economic data release as well as to shed some light on the market’s directional bias. Increasing volume ahead of the announcement will telegraph likely follow-through behind whatever move is to materialize, while an imbalance in available liquidity on the Bid versus the Offer side of the market will tell us the direction major institutions are likely favoring ahead of the announcement:
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Bullish Scenario:
If we see substantially deeper available liquidity on the Bid side of the market, this tells us that major price providers in the market are looking to buy the Euro against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bullish bias on EURUSD ahead of the data release. |
Bearish Scenario: |
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Consumer consumption in the U.S. is expected to improve for the second-consecutive month in June, with economists forecasting a 0.4% rise in retail sales, and the data could encourage an enhanced outlook for future growth as policymakers take unprecedented steps to stimulate the world’s largest economy. At the same time, the bigger-than-expected drop in non-farm payrolls paired with the rise in energy costs could lead households to scale back on discretionary spending throughout the second-half of the year, and increased fears of a protracted downturn could strengthen the U.S. dollar as the reserve currency continues to benefit from safe-haven flows. The final GDP reading showed economic activity contracted 5.5% in the first quarter, with business spending marking the biggest decline since recordkeeping began in 1947, and growth prospects are likely to remain subdued over the year as firms continue to scale back on production and employment in an effort to weather the worst recession in over half a century. Moreover, domestic vehicle sales slipped to an annual rate of 7.2M from 7.4M in May, while same-store sales slumped 5.1% in June from the previous year, and the unexpected drop in the Conference Board’s consumer confidence index foreshadows a weakening outlook for consumer spending as households face a weakening labor market paired with the slump in private lending. Nevertheless, a separate report showed orders for durable goods unexpectedly rose for the second month in May, with factory orders climbing more than expected during the same period, and growth prospects may continue to improve throughout the year as policymakers anticipate a global recovery in 2010. Meanwhile, the Federal Reserve continued to hold the benchmark interest rate at the record-low of 0.50% in June and maintained its $1.75T asset purchase program in order to jump-start the ailing economy, and the MPC is widely expected to uphold its current policy in place as policymakers hold a dovish outlook for inflation. However, the central bank went onto say that ‘the pace of economic contraction is slowing,’ with financial conditions ‘generally’ improving, and expectations for a recovery later this year could lead the Fed to tighten policy over the following year as the FOMC maintains a 2% target for price growth. As a result, a rise in retail sales is likely to encourage an enhanced outlook for the economy, and long-term expectations for higher interest rates in the U.S. could strengthen the dollar throughout the rest of the year as investors forecast the central bank to hike rates over the next 12 months.
Trading the given event risk favors a bullish outlook for the greenback as market participants expect consumer consumption to rise for the second month in June, and price action following the release could set the stage for a long dollar trade. Therefore, an in-line print or a rise of 0.4% in retail sales would lead us to look for a red, five-minute candle subsequent to the release to confirm a sell entry on two-lots of EUR/USD. Once these conditions are met, we will set our initial stop at the nearby swing high, or a reasonable distance taking volatility into account, and this risk will establish our first target. Our second objected will be based on discretion, and we will move the stop on the second lot to breakeven once the first trade reaches its target in order to lock-in our profits.
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