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EUR/USD: Trading the U.S. Advance Retail Sales Report

EUR/USD: Trading the U.S. Advance Retail Sales Report

2011-02-14 20:47:00
David Song, Currency Strategist
Share:

Trading the News: U.S. Advance Retail Sales

What’s Expected:

Time of release: 02/15/2011 13:30 GMT, 8:30 EST

Primary Pair Impact : EURUSD

Expected: 0.5%

Previous: 0.6%

DailyFX Forecast: 0.3% to 0.8%

Why Is This Event Important:

Retail sales in the world’s largest economy is forecasted to expand another 0.5% in January following the 0.6% expansion in the previous month, and the rise in household spending could generate a bullish reaction in the U.S. dollar as private sector consumption remains one of the leading drivers of growth. As private sector activity improves, the Federal Reserve may raise its economic assessment in its policy meeting minutes due out later this week, and a shift in the central bank’s fundamental outlook could pave the way for additional U.S. dollar strength as investors weigh the prospects for future policy.

Recent Economic Developments

The Upside

Release

Expected

Actual

Consumer Credit (DEC)

$2.400B

$6.099B

Personal Spending (DEC)

0.5%

0.7%

Consumer Confidence (JAN)

54.0

60.6

The Downside

Release

Expected

Actual

Construction Spending (DEC)

0.1%

-2.5%

Durable Goods Orders (DEC)

1.5%

-2.5%

Non-Farm Payrolls (JAN)

146K

36K

As credit conditions improve, with consumer sentiment gathering pace, households may increase their willingness to spend as the rebound in economic activity gradually gathers pace. However, given the tepid recovery in employment paired with the ongoing weakness in the housing market, the substantial margin of slack within the real economy may bear down on private consumption as the Federal Reserve continues to cast doubts for a sustainable recovery.

Potential Price Targets For The Release

EURUSD_Trading_the_U.S._Advance_Retail_Sales_Report_body_ScreenShot012.png, EUR/USD: Trading the U.S. Advance Retail Sales Report

How To Trade This Event Risk

Expectations for a seventh consecutive rise in household spending certainly reinforces a bullish outlook for the greenback, and the market reaction to the data could set the stage for a long U.S. dollar trade as the prospects for future growth improves. Therefore, if retail sales increase 0.5% or greater from the previous month, we will need to see a red, five-minute candle following the release to generate a sell entry on two-lots of EUR/USD. Once these conditions are met, we will set the initial stop at the nearby swing high or a reasonable distance from the entry, and this risk will establish our first objective. The second target will be based on discretion, and we will move the stop on the second lot to cost once the first trade reaches its mark in order to preserve our profits.

On the other hand, Americans may curb their willingness to spend as they cope with the protracted recovery in employment paired with a depressed housing market, and a dismal sales report could bear down on the exchange rate as the outlook for growth and inflation deteriorates. As a result, if household spending increases less than 0.3% or unexpectedly contracts from the previous month, we will implement the same strategy for a long euro-dollar trade as the short position laid out above, just in the opposite direction.

Impact that the U.S. Advance Retail Sales report has had on USD during the last month

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

Dec 2010

01/14/2011 13:30 GMT

0.8%

0.6%

-7

+12

December 2010 U.S. Advance Retail Sales

Household spending in the world’s largest economy expanded for the sixth consecutive month in December, with sales advancing 0.6% from the previous month, and the data reinforces an improved outlook for the region as private sector consumption remains one of the leading drivers of growth. The breakdown of the report showed demands for building materials increased 2.0% to lead the advance, with gasoline receipts rising another 1.6% after expanding 3.8% in the month prior, while discretionary on clothing slipped 0.2% following the 2.0% rise in November. At the same time, a separate report showed consumer prices increased at an annualized pace of 1.5% in December to exceed forecasts for a 1.3% expansion, and the Federal Reserve may raise its outlook for growth and inflation as the economic recovery gradually gathers pace. However, market participants showed a mixed reaction to the slew of data, with the EUR/USD spiking to a high of 1.3384 just minutes following the release, and we saw the greenback fail to regain its footing during the day as the exchange rate ended the trading session at 1.3373.

EURUSD_Trading_the_U.S._Advance_Retail_Sales_Report_body_ScreenShot011.png, EUR/USD: Trading the U.S. Advance Retail Sales Report

Questions? Comments? Join us in the DailyFX Forum

Join Currency Analyst David Song in the DailyFX Trading Room to cover the event LIVE!

View the Expo Presentation on ‘Trading the News’ For Additional Resources

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