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Weak U.S. Retail Sales to Fuel ECB-Drive EUR/USD Advance

Weak U.S. Retail Sales to Fuel ECB-Drive EUR/USD Advance

2015-12-11 08:00:00
David Song, Shuyang Ren,
Share:

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

- Household Spending Has Risen Four Out of Last Ten-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 fuel speculation for a December Fed rate-hike and spur a near-term pullback in EUR/USD as central bank officials largely endorse an upbeat outlook for the world’s largest economy.

What’s Expected:

EUR/USD US Advance Retail Sales

Click Here for the DailyFX Calendar

Why Is This Event Important:

Signs of stronger consumption may encourage the Federal Open Market Committee (FOMC) to remove the zero-interest rate policy (ZIRP) at the next meeting as it remains one of the leading drivers of growth and inflation but, a weak sales report may drag on rate expectations as Chair Janet Yellen appears to be in no rush to normalize monetary policy.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Non-Farm Payrolls (NOV)

200K

211K

Durable Goods Orders (OCT P)

1.7%

3.0%

Gross Domestic Product (Annualized) (QoQ) (3Q P)

2.1%

2.1%

With the U.S. economy approaching full-employment, a pickup in household spending may encourage the Fed to implement higher borrowing-costs throughout 2016, and a positive development should boost the appeal of the greenback as the central bank gets ready to shift gears.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Consumer Credit (OCT)

$20.000B

15.982B

Household Change in Net Worth (3Q)

--

-$1232B

Average Hourly Earnings (YoY) (NOV)

2.3%

2.3%

However, subdued wages accompanied by the slowdown in private credit may drag on sales, and a dismal outcome may prompt the FOMC to lower its interest-rate forecast at the December meeting as it undermines the central bank’s scope to achieve the 2% inflation target over the policy horizon.

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How To Trade This Event Risk(Video)

Bullish USD Trade: Retail Sales Expands 0.2% or Greater in November

  • 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: U.S. Household Consumption Falls Short of Market Forecast

  • 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

EUR/USD Daily

EUR/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • EUR/USD stands at risk of further retracing the decline from the October high (1.1494) as the bull flag formation takes shape following the European Central Bank (ECB) interest rate decision, while the Relative Strength Index (RSI) appears to breaking out of the bearish formation from back in August.
  • DailyFX Speculative Sentiment Index (SSI)shows the retail crowd remains net-short since December 3, but the ratio sits near recent extremes as it holds at -1.42, with 41% of traders long.
  • Interim Resistance: 1.1052 (November high) to 1.1090 (50% retracement)
  • Interim Support: Interim Support: 1.0380 (78.6% expansion) to 1.0410 (61.8% expansion)

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)

OCT

2015

11/13/2015 13:30 GMT

0.3%

0.1%

-12

+10

November 2015 U.S. Advance Retail Sales

EUR/USD Chart

U.S. Retail Sales continued to miss market expectations in October as household spending increased 0.1% after holding flat during the previous month. A deeper look at the report showed waning demand for motor vehicle/parts accompanied by lower gasoline receipts dragged on the print, which was largely offset by increased spending on building material and health/ personal care. Despite the ongoing weakness in private-consumption, it seems as though the Fed will stay on course to raise the benchmark interest rate in 2015 as Chair Janet Yellen sees the central bank on its way to achieve its dual mandate for full-employment and price stability. The initial decline in the greenback was short-lived, with EUR/USD largely consolidating throughout the North American trade as it closed the day at 1.0762.

Read More:

NZD/USD Eyes October High Following RBNZ Rate Cut

Price & Time: Crude – So Important Here

WTI Crude Oil Price Forecast: New Lows on No Production Cut & Strong USD

COT-Small British Pound Traders are Most Short Since April Low

--- 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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