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EUR/USD to Eye May High on Dismal U.S. Retail Sales Report

EUR/USD to Eye May High on Dismal U.S. Retail Sales Report

David Song, Shuyang Ren,

- 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.

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

Trading the News: U.S. Advance Retail Sales

A 1.2% rebound in U.S. Retail Sales may increase the appeal of the greenback and highlight a more bearish outlook for EUR/USD as the Fed remains on course to normalize monetary policy in 2015.

What’s Expected:

EUR/USD Retail Sales

Click Here for the DailyFX Calendar

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

Release

Expected

Actual

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

Release

Expected

Actual

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.

Join DailyFX on Demand for Real-Time Updates on the DailyFX Speculative Sentiment Index (SSI)!

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

EURUSD Daily

EUR/USD Daily Chart

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)

Read More:

Price & Time: USD/JPY Backtest or Something More?

USDCAD Breakdown at Initial Support- Short Scalps Favored Sub 1.24

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)

APR

2014

05/13/2014 12:30 GMT

0.2%

0.0%

+52

+86

April 2015 U.S. Advance Retail Sales

EUR/USD Chart

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

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

To be added to David's e-mail distribution list, please follow this link.

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