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EUR/USD Advance Susceptible to Strong U.S. Retail Sales Report

EUR/USD Advance Susceptible to Strong U.S. Retail Sales Report

2015-10-14 08:00:00
David Song, Shuyang Ren,
Share:

- U.S. Advance Retail Sales to Increase Third Consecutive Month.

- Household Spending Has Increased Four Out of Last Eight-Months.

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

Trading the News: U.S. Advance Retail Sales

Another 0.2% expansion in U.S. Retail Sales may boost the appeal of the greenback and spur a near-term pullback in EUR/USD as signs of a stronger recovery fuels expectations for a 2015 Fed rate hike.

What’s Expected:

EUR/USD Advance Retail Sales

Click Here for the DailyFX Calendar

Why Is This Event Important:

The Federal Open Market Committee (FOMC) may stay on course to remove the zero-interest rate policy (ZIRP) later this year as Chair Janet Yellen remains upbeat on the U.S. economy, and a further expansion in private-sector consumption may encourage central bank officials to adopt a more hawkish outlook for monetary policy as it raises the outlook for growth and inflation.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

NFIB Small Business Optimism (SEP)

95.5

96.1

Consumer Confidence (SEP)

96.8

103.0

Gross Domestic Product (Annualized) (QoQ) (2Q F)

3.7%

3.9%

Improved confidence accompanied by the marked recovery in the second-quarter may prop up household spending, and an upbeat sales report may spur a bullish reaction in the greenback as it boosts interest rate expectations.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Wholesale Trade sales (MoM) (AUG)

-0.4%

-1.0%

Average Hourly Earnings (YoY) (SEP)

2.4%

2.2%

Challenger Job Cuts (YoY) (SEP)

--

93.2%

In contrast, subdued wage growth paired with the rise in planned job-cuts may drag on consumption, and a dismal development may prompt the FOMC to retain its wait-and-see approach throughout the remainder of the year in an effort to encourage a stronger recovery.

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 Increases Another 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 Spending Falls Short of Market Expectations

  • 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

  • The diverging paths for monetary policy continues to favor a long-term bearish outlook for EUR/USD, but the pair may continue to retrace the decline from August as the Relative Strength Index (RSI) largely retains the bullish formation from back in March.
  • DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains net-short EUR/USD since March 9, but the ratio appears to be working back towards recent extremes as it slips to -1.90, with 34% of traders long.
  • Interim Resistance: 1.1760 (61.8% retracement) to 1.1810 (38.2% retracement)
  • Interim Support: Interim Support: 1.0790 (50% expansion) to 1.0800 (23.6% expansion)

Read More:

GBP/USD May Low Back in Focus as U.K. CPI Disappoints

Price & Time: Crude Fails At Widely Watched Moving Average Again

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)

AUG

2015

09/15/2015 12:30 GMT

0.3%

0.2%

-14

-55

August 2015 U.S. Advance Retail Sales

EUR/USD Chart

U.S. Retail Sales increased 0.2% in July after expanding a revised 0.7% the month prior. In the same time, Retail Sales Ex Auto and Gas rises 0.3%, with the previous print largely revised up to 0.7% from 0.4%. A deeper look at the report showed a 0.7% rise in demand for motor vehicle and parts, which was accompanied by a 0.4% expansion in discretionary spending on clothing, while gasoline receipts slipped another 1.8% after contracting 0.6% in July. The greenback strengthened following the release, with EUR/USD slipping below the 1.1275 region and closing the day at 1.1265.

--- 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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