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EUR/USD Weakness to Persist on Strong U.S. Retail Sales

EUR/USD Weakness to Persist on Strong U.S. Retail Sales

2015-03-12 07:00:00
David Song, Shuyang Ren,
Share:

- U.S. Advance Retail Sales to Rise for First Time in Three-Months.

- Will Lower Energy Prices Fuel Private-Sector Consumption?

For more updates, sign up for David's e-mail distribution list.

Trading the News: U.S. Advance Retail Sales

A rebound in U.S. Retail Sales may heighten the bullish sentiment surrounding the greenback and spur a further decline in EUR/USD as it fuels speculation for higher borrowing-costs in the world’s largest economy.

What’s Expected:

EUR/USD Weakness to Persist on Strong U.S. Retail Sales

Click Here for the DailyFX Calendar

Why Is This Event Important:

The Fed may stay on course to normalize monetary policy in mid-2015 as the central bank anticipates lower energy prices to boost private-sector consumption – one of the leading drivers of growth – and Chair Janet Yellen may adopt a more hawkish tone at the March 18 meeting as the board remains confident in achieving the 2% target for inflation.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Non-Farm Payrolls (FEB)

235K

295K

Gross Domestic Product (Annualized) (QoQ) (4Q P)

2.0%

2.2%

Durable Goods Orders (JAN)

1.6%

2.8%

Greater demand for large-ticket items paired with the ongoing improvement in the labor market may generate a better-than-expected retail sales figure, and a positive development may put increased pressure on the Fed to move away from its zero-interest rate policy (ZIRP) as growth prospects improve.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Consumer Credit (JAN)

$14.750B

$11.562B

Average Hourly Earnings (YoY) (FEB)

2.2%

2.0%

Personal Income (JAN)

0.4%

0.3%

Nevertheless, subdued wages along with the slowdown in private-sector credit may drag on retail spending, and another unexpected contraction may further delay the Fed’s normalization cycle as the ongoing weakness in household earnings undermines the central bank’s scope to achieve the inflation target.

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How To Trade This Event Risk(Video)

Bullish USD Trade: U.S. Retail Sales Rebounds 0.3% or Greater

  • Need red, five-minute candle following a positive print to consider a short EUR/USD trade.
  • If market reaction favors a bullish 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: Household Spending Disappoints

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

Potential Price Targets For The Release

EUR/USD Daily Chart

EUR/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Despite the long-term bearish outlook for EUR/USD, will keep a close eye on the Relative Strength Index (RSI) as it approaches key support levels.
  • Interim Resistance: 1.1185 (23.6% expansion) to 1.1210 (61.8% retracement)
  • Interim Support: 1.0375 (78.6% expansion) to 1.0400 pivot

Read More:

Staying Short Euro in a Fast Trending Market

NZD/USD Retains Bearish Momentum Ahead of RBNZ- 0.7175 in Focus

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)

JAN

2014

02/12/2014 13:30 GMT

-0.4%

-0.8%

+20

+97

January 2014 U.S. Advance Retail Sales

NZD/USD

U.S. Retail Sales declined another 0.8% in January following a 0.9% contraction the month prior. Despite lower energy costs, discretionary spending at department stores slipped for the second consecutive month, while demand for motor vehicles and parts slid another 0.5% during the same period. Following the worse-than-expected print, the greenback struggled to hold its ground, with EUR/USD climbing above the 1.1400 handle and closed the day at 1.1428.

--- 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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