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AUD/USD to Preserve Bearish Channel on Upbeat U.S. Retail Sales

AUD/USD to Preserve Bearish Channel on Upbeat U.S. Retail Sales

2015-11-13 08:00:00
David Song, Shuyang Ren,
Share:

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

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

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

Trading the News: U.S. Advance Retail Sales

Another 0.3% rise in U.S. Retail Sales may heighten the appeal of the greenback and trigger a short-term decline in AUD/USD as signs of a stronger recover boosts bets for a December Fed rate-hike.

What’s Expected:

AUD/USD US Retail Sales

Click Here for the DailyFX Calendar

Why Is This Event Important:

Even though the holiday shopping season lies right around the corner, the Federal Open Market Committee (FOMC) may stay on course to remove the zero-interest rate policy (ZIRP) later this year as the U.S. economy approaches full-employment, while Chair Janet Yellen remains confident in achieving the 2% target for inflation over the policy horizon.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Wholesale Trade Sales (MoM) (SEP)

0.1%

0.5%

Consumer Credit (SEP)

$18.000B

$28.918B

Non-Farm Payrolls (OCT)

185K

271K

The marked expansion in private-sector credit paired with the ongoing improvement in the labor market may foster a strong sales report, and signs of stronger consumption may spur a bullish reaction in the greenback as it puts increased pressure on the FOMC to normalize monetary policy later this year.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Personal Income (SEP)

0.2%

0.1%

Gross Domestic Product (Annualized) (3Q A)

1.6%

1.5%

Consumer Confidence (OCT)

102.9

97.6

However, tepid wage growth accompanied by waning confidence may drag on household spending, and a dismal development may prompt the Fed to carry its current policy into 2016 in an effort to stem the downside risks surrounding the real economy.

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How To Trade This Event Risk(Video)

Bullish USD Trade: Household Spending Rises Another 0.3% or Greater

  • Need red, five-minute candle following a positive print to consider a short AUD/USD trade.
  • If market reaction favors a bullish dollar trade, sell AUD/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: U.S. Retail Sales Report Disappoints

  • Need green, five-minute candle to favor a long AUD/USD trade.
  • Implement same setup as the bullish dollar trade, just in reverse.

Potential Price Targets For The Release

AUD/USD Daily

AUD/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Even though the Relative Strength Index (RSI) threatens the bearish formation carried over from the previous month, the downward trending channel in AUD/USD may continue to take shape over the near-term as the pair largely preserves the monthly opening-range, while it fails to fully retrace the decline following the better-than-expected U.S. Non-Farm Payrolls (NFP) report.
  • DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains net-long AUD/USD since May 15, but the ratio has fallen back from recent extremes as it narrows to +1.71, with 63% of traders now long.
  • Interim Resistance: 0.7380 (50% retracement) to 0.7390 (78.6% expansion)
  • Interim Support: 0.6830 (161.8% expansion) to 0.6860 (61.8% expansion)

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

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

SEP

2015

10/14/2015 12:30 GMT

0.2%

0.1%

+14

+43

September 2015 U.S. Advance Retail Sales

AUD/USD Chart

U.S. Retail Sales fell short of market forecasts as household spending increased 0.1% in September after holding flat during the previous month. A deeper look at the report showed demand for motor vehicle and parts increased 1.7%, with discretionary spending on clothing climbing 0.9%, while gasoline receipts slipped 3.2% after falling 2.0% in August. Despite the ongoing slack in private-sector activity, it seems as though the Federal Reserve will stay on course to normalize monetary policy in 2015 as Chair Janet Yellen remains upbeat on the economy. The greenback struggled to hold its ground following the weaker-than-expected print, with AUD/USD largely holding above the 0.7250 region throughout the North American trade to end the day at 0.7296.

Read More:

US DOLLAR Technical Analysis: Set To Hold Key Support

Australian Dollar Rallies as Jobs Data Diminishes RBA Rate Cut Bets

Price & Time: EUR/USD - To Bounce or Not To Bounce

EUR/JPY on the Cusp of Important Move

--- 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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