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USD to Benefit From Stronger Retail Sales Amid Taper Bets

USD to Benefit From Stronger Retail Sales Amid Taper Bets

David Song, Gregory Marks,

- U.S. Advance Retail Sales to Rise for Second Month

- Sales Excluding Autos to Advance for Third Straight Month

Trading the News: U.S. Advance Retail Sales

A pickup in U.S. Advance Retail Sales may encourage a more meaningful rebound in the dollar as it raises the Fed’s scope to taper the asset-purchase program at the December 17-18 meeting.

What’s Expected:

Time of release: 12/12/2013 13:30 GMT, 8:30 EST

Primary Pair Impact: EURUSD

Expected: 0.6%

Previous: 0.4%

DailyFX Forecast: 0.4% to 0.8%

Why Is This Event Important:

Key data prints highlighting a more robust recovery may heighten bets for a small taper as market participants turn their attention to the Federal Open Market Committee (FOMC) interest rate decision, and the central bank may sound more upbeat this time around following the upward revision in 3Q GDP.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Consumer Credit (OCT)

$14.500B

$18.186B

U. of Michigan Confidence (DEC P)

76.0

82.5

Non-Farm Payrolls (NOV)

185K

203K

The recent pickup in job growth along with the rebound in household confidence may pave the way for a stronger-than-expected sales report, and a marked rise in private sector consumption should raise the outlook for the U.S. economy as it remains one of the leading drives of growth.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Personal Income (OCT)

0.3%

-0.1%

Average Hourly Earnings (YoY) (NOV)

2.0%

2.0%

Durable Goods Orders (OCT)

-2.0%

-2.0%

Nevertheless, subdued wage growth may continue to drag on household consumption amid the ongoing slack in the real economy, and the Fed may carry its highly accommodative policy stance into 2014 amid the growing threat for disinflation.

How To Trade This Event Risk(Video)

Bullish USD Trade: Retail Sales Climbs 0.6% or Greater

  • Need red, five-minute candle following the data to consider a short EURUSD trade
  • If market reaction favors a long dollar trade, sell EURUSD with two separate position
  • Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward
  • Move stop to entry on remaining position once initial target is hit, set reasonable limit

Bearish USD Trade: Household Spending Disappoints

  • Need green, five-minute candle to favor a long EURUSD trade
  • Implement same setup as the bearish dollar trade, just in reverse

Potential Price Targets For The Rate Decision

EURUSD Daily

Forex_USD_to_Benefit_From_Stronger_Retail_Sales_Amid_Taper_Bets_body_Picture_2.png, USD to Benefit From Stronger Retail Sales Amid Taper Bets

Chart - Created Using FXCM Marketscope 2.0

  • Ascending Channel Continues to Take Shape; Higher High on Tap?
  • Break Above 70 on RSI to Provide Confirmation/Conviction
  • Interim Resistance: 1.3800 Pivot to 1.3831 (2013 High)
  • Interim Support: 1.3450 (50.0% expansion) to 1.3490 (50.0% retracement)

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

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

OCT 2013

11/20/2013 13:30 GMT

0.1%

0.4%

-8

-27

October 2013 U.S. Advance Retail Sales

Forex_USD_to_Benefit_From_Stronger_Retail_Sales_Amid_Taper_Bets_body_Picture_1.png, USD to Benefit From Stronger Retail Sales Amid Taper Bets

Despite the U.S. government shutdown, Adjusted Retail Sales MoM for October came in at 0.4%, beating economist estimates of 0.1% while the prior print was revised up a tenth of a percent to 0.0%. With the median age of autos in the U.S. standing at a record 11.1 years old, it is no surprise that the reading was led by new car sales. With the U.S. holiday season in full swing, economists estimate that the November print will come in at its third best for 2013 at 0.6%. Following better than expected GDP and NFPs, a strong Retail Sales print here will contribute to already strong fundamentals ahead of FOMC week.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

To be added to David's e-mail distribution list, please follow this link.

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