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Lackluster U.S. Retail Sales Report to Dampen USD, Fed Outlook

Lackluster U.S. Retail Sales Report to Dampen USD, Fed Outlook

David Song, Shuyang Ren,

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

- Household Spending Has Failed to Meet Market Forecast the Last Four Straight Prints.

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Trading the News: U.S. Advance Retail Sales

Another 0.2% rise in U.S. Retail Sales may heighten the appeal of the greenback and spur a larger pullback in EUR/USD as Fed officials look for a faster rate of growth in the second-quarter of 2015.

What’s Expected:

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Why Is This Event Important:

The Fed may keep the door open for a mid-2015 as the central bank anticipates a pickup in economic activity, and signs of a stronger recovery may foster a more bullish outlook for the greenback as the committee remains on course to normalize monetary policy.

Expectations: Bullish Argument/Scenario

Unemployment Rate (APR)5.4%5.4%
Consumer Credit (MAR)$15.800B$20.523B
U of Michigan Confidence (APR A)94.095.9

The expansion in private-sector credit along with the pickup in household confidence may generate a strong retail sales report, and a better-than-expected print may push EUR/USD back towards the 1.1000 region as it boosts interest rate expectations.

Risk: Bearish Argument/Scenario

Average Hourly Earnings (YoY) (APR)2.3%2.2%
Personal Income (MAR)0.2%0.0%
Consumer Price Index Core (MAR)1.7%1.8%

Nevertheless, U.S. households may continue to scale back on spending amid easing discounts paired with stagnant wage growth, and a dismal figure may spur a bearish reaction in the greenback as it raises the risk for a further delay in the Fed’s normalization cycle.

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How To Trade This Event Risk(Video)

Bullish USD Trade: U.S. Retail Spending Climbs 0.2% 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 Consumption 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

  • EUR/USD remains at risk for a further advance as the bullish momentum on the Relative Strength Index (RSI) continues to take shape.
  • DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains net-short EUR/USD since April 9, with the ratio currently standing at -1.88.
  • Interim Resistance: 1.1520 (61.8% expansion) to 1.1532 (February high)
  • Interim Support: 1.0970 (38.2% expansion) to 1.1000 (50% retracement)

Read More:

COT-Position Flip in Swiss Francs

Scalp Webinar: EURUSD Eyes Support- May Opening Range Setups in Focus

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

PeriodData ReleasedEstimateActualPips ChangePips Change



04/14/2014 12:30 GMT1.1%0.9%+60+6

March 2014 U.S. Advance Retail Sales


Despite the weaker-than-expected print, U.S. Retail Sales increased 0.9% in March to end the longest stretch of decline since 2012. The rise was largely driven by greater demand for motor vehicles and parts, while discretionary spending on clothing increased 1.2% during the same period after holding flat in February. Even though the Fed remains on course to remove the zero-interest rate policy (ZIRP), the ongoing weakness in private-sector consumption, one of the leading drivers of growth and inflation, may further delay the Fed’s normalization cycle in an effort to encourage a stronger recovery. EUR/USD briefly climbed above the 1.0700 handle following the lackluster release, but the pair consolidated throughout the North American trade to end the day at 1.0624.

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

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

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