EUR/USD Risks Larger Rebound on Dismal U.S. Retail Sales Report
- U.S. Advance Retail Sales to Contract for Second Consecutive Month.
- Will Lower Energy Prices Help Boost Private-Sector Consumption?
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Trading the News: U.S. Advance Retail Sales
Another contraction in U.S. Retail Sales may drag on the greenback and generate a near-term rebound in EUR/USD as it dampens the Fed’s scope to raise the benchmark interest rate in mid-2015.
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Why Is This Event Important:
The Fed may have little choice but to further delay its normalization cycle as lower energy costs show little evidence of boosting private-sector consumption, and we may see the central bank implement a more dovish twist to the forward-guidance for monetary policy as it struggles to achieve the 2% target for inflation.
Expectations: Bearish Argument/Scenario
|Consumer Credit (DEC)||$15.000B||$14.755B|
|Personal Spending (DEC)||-0.2%||-0.3%|
|Gross Domestic Product (Annualized) (QoQ) (4Q A)||3.0%||2.6%|
The ongoing slowdown in private-sector lending may weigh on household consumption, and a dismal retail sales report may undermine the bullish sentiment surrounding the dollar as it drags on interest rate expectations.
Risk: Bullish Argument/Scenario
|Non-Farm Payrolls (JAN)||228K||257K|
|Average Hourly Earnings (YoY) (JAN)||1.9%||2.2%|
|Personal Income (DEC)||0.2%||0.3%|
Nevertheless, the pickup in job/wage growth may pave the way for a better-than-expected print, and a positive development may spark a bearish reaction in EUR/USD as market participants ramp up bets for higher borrowing-costs.
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How To Trade This Event Risk(Video)
Bearish USD Trade: U.S. Retail Sales Falls Another 0.4% or Greater
- 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: Private Consumption 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
Chart - Created Using FXCM Marketscope 2.0
- Long-term outlook for EUR/USD remains bearish as the RSI retains the downward trend carried over from back in October 2013.
- Interim Resistance: 1.1600 pivot to 1.6110 (61.8% expansion)
- Interim Support: 1.1096 (2015 low) to 1.1100 pivot
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|
|01/14/2014 13:30 GMT||-0.1%||-0.9%||+30||-1|
December 2014 U.S. Advance Retail Sales
U.S. Retail Sales contracted 0.9% in December, largely driven by lower gas receipts, after climbing a revised 0.4% the month prior. Despite the worse-than-expected print, it seems as though the Fed remains confident in raising the benchmark interest rate in mid-2015 as the central bank anticipates falling oil prices to have a positive impact on the economy as it boosts disposable incomes. Nevertheless, the dollar struggled to hold its ground following the print, with EUR/USD climbing above the 1.1825 region, but the market reaction was short-lived as the pair consolidated throughout the North America trade to end the day at 1.1773.
--- 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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