EUR/USD Advance Susceptible to Strong U.S. Retail Sales Report
- U.S. Advance Retail Sales to Increase Third Consecutive Month.
- Household Spending Has Increased Four Out of Last Eight-Months.
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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.
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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
|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
|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.
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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
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)
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||Pips Change|
|09/15/2015 12:30 GMT||0.3%||0.2%||-14||-55|
August 2015 U.S. Advance Retail Sales
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
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