EUR/USD Risks Larger Rebound on Dismal U.S. Retail Sales Report
- U.S. Advance Retail Sales to Contract for First Time Since September.
- Will Seasonal Factors Produce Better-Than-Expected Consumption Report?
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Trading the News: U.S. Advance Retail Sales
A contraction in U.S. Retail Sales may dampen the appeal of the greenback and generate a more meaningful rebound in EUR/USD as it dampens bets of seeing the Federal Reserve normalize monetary ahead of schedule.
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Why Is This Event Important:
Despite expectations for a rate hike in mid-2015, the Fed may further delay normalizing monetary policy as it struggles to achieve its 2% target for inflation, and the central bank may retain the highly accommodative stance for an extended period of time in order to encourage a stronger recovery.
Expectations: Bearish Argument/Scenario
|Average Weekly Earnings (YoY) (DEC)||2.2%||1.7%|
|Consumer Credit (NOV)||$15.000B||$14.081B|
|Consumer Confidence (DEC)||93.9||92.6|
Subdued wage growth paired with slowdown in consumer credit may drag on private sector consumption, and a dismal sales report may trigger a larger correction in the U.S. dollar as it curbs the outlook for growth and inflation.
Risk: Bullish Argument/Scenario
|Non-Farm Payrolls (DEC)||240K||252K|
|Gross Domestic Product (Annualized) (QoQ) (3Q F)||4.3%||5.0%|
|Consumer Price Index (YoY) (NOV)||1.4%||1.3%|
Nevertheless, easing energy prices paired with the ongoing improvement in the labor market may prop up household spending, and a positive print may fuel a further decline in EUR/USD as it boosts interest rate expectations.
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How To Trade This Event Risk(Video)
Bearish USD Trade: U.S. Retail Sales Slips 0.1% or More
- Need green, five-minute candle following the release to consider a long trade on EUR/USD.
- If market reaction favors a bearish dollar trade, buy EUR/USD with two separate position.
- Set stop at the near-by swing low/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.
Bullish USD Trade: Household Spending Exceeds Market Forecast
- Need red, five-minute candle to favor a short EUR/USD trade.
- Implement same setup as the bearish dollar trade, just in reverse.
Potential Price Targets For The Release
EUR/USD Daily Chart
Chart - Created Using FXCM Marketscope 2.0
- EUR/USD remains at risk for a further decline as the RSI struggles to come off of oversold territory; .
- Interim Resistance: 1.1960-70 (78.6% expansion)
- Interim Support: 1.1740-50 (161.8% expansion)
Impact that the U.S. Retail Sales report has had on EUR/USD during the previous month
|Period||Data Released||Estimate||Actual||Pips Change||Pips Change|
|12/11/2014 13:30 GMT||0.4%||0.7%||-36||-41|
November 2014 U.S. Advance Retail Sales
U.S. Retail Sales advanced another 0.7% in November after climbing a revised 0.5% the month prior. Increased demand for building materials, motor vehicles and clothing contributed to the second consecutive rise in private-sector consumption. Indeed, the pickup in household spending may encourage the Fed to normalize monetary policy sooner than later as consumer spending remains one of the leading drives of growth for the U.S. economy. The better-than-expected print pushed EUR/USD down towards 1.2375 during the North American trade, but the pair bounced back going into the European close to end the day at 1.2395.
--- Written by David Song, Currency Analyst and Shuyang Ren
To contact David, e-mail email@example.com. Follow me on Twitter at @DavidJSong.
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