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USD to Extend Near-Term Rally on Strong Retail Sales Report

USD to Extend Near-Term Rally on Strong Retail Sales Report

2014-11-14 11:00:00
David Song, Shuyang Ren,
Share:

- U.S. Advance Retail Sales to Increase for Eighth Time in 2014.

- Rise of 0.2% Would Mark the Smallest Rebound for Entire Year.

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Trading the News: U.S. Advance Retail Sales

Beyond the Euro-Zone’s 3Q Gross Domestic Product (GDP) report, a marked rebound in U.S. Retail Sales may continue to highlight a long-term bearish outlook for EUR/USD as the Federal Open Market Committee (FOMC) is widely expected to start normalizing monetary policy in 2015.

What’s Expected:

EUR/USD Retail Sales

Click Here for the DailyFX Calendar

Why Is This Event Important:

Indeed, a large pickup in private-sector consumption may foster a greater dissent within the FOMC and encourage a greater number of central bank officials to adopt a more hawkish tone for monetary policy as it raises the outlook for growth and inflation.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

U. of Michigan Confidence (OCT F)

86.4

86.9

Consumer Confidence (OCT)

87.0

94.5

Consumer Price Index Core (YoY) (SEP)

1.7%

1.7%

Discounted prices paired with the pickup in consumer confidence may generate a strong sales report, and positive developments coming out of the U.S. economy should continue to heighten the appeal of the greenback as it boosts interest rate expectations.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Non-Farm Payrolls (OCT)

235K

214K

Average Hourly Earnings (YoY) (OCT)

2.1%

2.0%

Personal Income (SEP)

0.3%

0.2%

However, U.S. household may continue to scale back on spending amid slowing employment along with subdued wage growth, and a dismal print may spur a more meaningful rebound in EUR/USD as Fed Chair Janet Yellen remains in no rush to remove the zero-interest rate policy (ZIRP).

How To Trade This Event Risk(Video)

Bullish USD Trade: U.S. Retail Sales Rebounds 0.2% or Greater

  • Need red, five-minute candle following the release to consider a short trade on EUR/USD
  • If market reaction favors a long dollar trade, sell EUR/USD 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: Private-Sector Consumption Continues to Disappoint

  • Need green, five-minute candle to favor a long EUR/USD trade
  • Implement same setup as the bullish dollar trade, just in the opposite direction

Potential Price Targets For The Release

EUR/USD Daily Chart

EUR/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Will continue to favor downside targets as RSI holds in oversold territory & retains bearish momentum.
  • Interim Resistance: 1.2600 pivot to 1.2620 (61.8% expansion)
  • Interim Support: 1.2280 (100% expansion) to 1.2300 pivot

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Impact that the U.S. Retail Sales report has had on EUR/USD during the previous month

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

SEP 2014

10/15/2014 12:30 GMT

-0.1%

-0.3%

+121

+146

September 2014 U.S. Advance Retail Sales

EUR/USD Daily

U.S. retail sales in September fell short of market expectation as it shrank 0.3% from August, largely due to drops in purchases of gasoline, autos, clothing and building materials. Despite the ongoing improvement in the labor market, stagnant wage gains may continue to hit household spending, which may further hinder the U.S. economy in the third quarter. The disappointing print dragged on the greenback, with the EUR/USD surging above the 1.2800 handle to end the day at 1.2815.

Read More:

Price & Time: The AUD/USD Cold Shoulder

AUDUSD Scalps Target Head and Shoulders Break- Bearish Sub 9236

--- Written by David Song, Currency Analyst and Shuyang Ren

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

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