trading news reports

U.S. Retail Sales Could Spur Bearish Sentiment for the Dollar

Thursday, 11 September 2008 15:15:53 GMT  |  David Song, Currency Analyst

Trading the News: U.S. Retail Sales

What’s Expected

Time of release:                  09/12/2008 12:30 GMT, 08:30 EST

Primary Pair Impact :          EURUSD

Expected:                              0.2%

Previous:                               -0.1%

 

Effect the U.S. retail sales report had over EURUSD for the last 3 months

 

Period	Data Released	Estimate	Actual	Pips Change (1 Hour post event )	Pips Change (End of Day post event)
Jul 2008	08/13/2008  12:30 GMT	-0.1%	-0.1%	-18	+18
Jun 2008	07/15/2008  12:30 GMT	0.4%	0.1%	-16	-79
May 2008	06/12/2008  12:30 GMT	0.5%	1.0%	+6	+1

 How To Trade This Event Risk

 

Falling gas prices paired with a rise in durable goods orders in July is expected to boost private-sector consumption as economists predict a 0.2% increase in retail spending. Meanwhile, sales excluding the volatile auto component is anticipated to fall 0.2% after rising 0.4% in the prior month. The headline figure however, could be overstating the underlying sales trend in the U.S. as domestic vehicles sales increased to 10.4M from 9.1M in July. Despite the minor recovery in the automotive sector, chain-store sales slipped to 1.7% from a revised reading of 2.5%, while wholesale inventories increased to 1.4% from 1.1% in June. Furthermore, consumer prices peaked to a fresh record high of 5.6% in July, while the core inflation figure ticked higher to 2.5% from 2.4% in June. In addition, August NFP’s dipped to -84K, which hiked the unemployment rate to 6.1% from 5.7%. Upside price growth paired with an upward trend in unemployment suggests that sales trends may remain subdued as economic activity remains sluggish.

 

Trading the given event risk may not be as clear cut as some of our other trades, but an improvement in the retail sector would brighten the growth outlook, and could help to support a rally in the US dollar. As a result, we will look for a red, five-minute candle to generate an entry on two lots of the EURUSD. Our initial stop will be placed at the nearby swing (or a reasonable distance), and this risk will determine our first target. Our second target will be based purely on discretion, and we will move the stop on the second lot when the first half of the trade reaches its target in order to preserve our profit.

 

Alternatively, the lack of improvement in the U.S. economy suggests that retail spending may falter, which would trigger a bearish outlook for the greenback. Consequently, a fall in spending would generate a long trade, which will follow the same strategy listed above, just in reverse.

 

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