EUR/USD to Eye May High on Dismal U.S. Retail Sales Report
- U.S. Advance Retail Sales to Rebound After Holding Flat in April.
- Household Spending Has Failed to Meet Market Forecast the Last Five Straight Prints.
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Trading the News: U.S. Advance Retail Sales
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Why Is This Event Important:
Signs of a stronger recovery may encourage the Federal Open Market Committee (FOMC) to adopt a more hawkish tone at the June 17 interest rate decision, and expectations for higher borrowing-costs may spur a resumption of the long-term bullish USD trend as the central bank moves away from its easing cycle.
Expectations: Bullish Argument/Scenario
|Consumer Credit (APR)||$16.000B||$20.541B|
|Average Hourly Earnings (YoY) (MAY)||2.2%||2.3%|
|Non-Farm Payrolls (MAY)||226K||280K|
The pickup in job/wage growth along with the ongoing expansion in private-sector credit may encourage a marked rebound in household consumption, and an upbeat print may trigger a bullish reaction in the greenback as it boosts interest rate expectations.
Risk: Bearish Argument/Scenario
|Consumer Price Index ex Food & Energy (YoY) (APR)||1.7%||1.8%|
|Personal Consumption (1Q P)||2.0%||1.8%|
|U. of Michigan Confidence (MAY P)||95.9||88.6|
Nevertheless, retail sales may continue to disappoint amid easing discounts paired with waning consumer confidence, and another weaker-than-expected report may drag on the dollar as it raises the 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 Sales Rebounds 1.2% 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 Spending 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 reverse.
Potential Price Targets For The Release
Chart - Created Using FXCM Marketscope 2.0
- EUR/USD appears to be stuck in a long-term wedge/triangle formation following the failed attempt to test the February high back in May; remains at risk for range-bound prices as market participants weigh the outlook for monetary policy.
- DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains net-short EUR/USD since May 19, with the ratio currently standing at -2.17.
- Interim Resistance: 1.1510 (61.8% expansion) to 1.1532 (February high)
- Interim Support: 1.0970 (38.2% expansion) to 1.1000 (50% retracement)
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|
|05/13/2014 12:30 GMT||0.2%||0.0%||+52||+86|
April 2015 U.S. Advance Retail Sales
U.S. Retail Sales unexpectedly held flat in April following a revised 1.1% advance the month prior. A deeper look at the report showed a 2.2% decline in department stores sales, which was accompanied by a 0.7% decline in gasoline receipts, while discretionary spending on clothing increased another 0.2% after climbing 0.9% in March. The ongoing in private-sector consumption dragged on the greenback, with EURUSD clearing the 1.1300 handle to end the North American trade at 1.1353.
--- Written by David Song, Currency Analyst and Shuyang Ren
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