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EUR/USD Descending Channel to Persist on Upbeat U.S. Retail Sales

EUR/USD Descending Channel to Persist on Upbeat U.S. Retail Sales

David Song, Strategist

- U.S. Advance Retail Sales to Increase for Second-Time in 2016.

- Core Sales to Rise for Third Consecutive Month in April.

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

Trading the News: U.S. Advance Retail Sales

A 0.8% rebound in U.S. Advance Retail Sales may boost the appeal of the greenback and spur a near-term decline in EUR/USD as it puts increased pressure on the Federal Open Market Committee (FOMC) to implement higher borrowing-costs.

What’s Expected:

DailyFX Calendar

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Why Is This Event Important:

A meaningful pickup in private-sector spending may encourage the Fed to normalize monetary policy sooner rather than later as it remains one of the leading drivers of growth and inflation.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Consumer Credit (MAR)

$16.000B

$29.674B

Average Hourly Earnings (YoY) (APR)

2.4%

2.5%

Personal Income (MAR)

0.3%

0.4%

Stronger wage growth accompanied by the expansion in private-sector lending may spur a better-than-expected sales report, and a positive development may trigger a bullish reaction in the U.S. dollar as it boosts interest-rate expectations.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Non-Farm Payrolls (APR)

200K

160K

ADP Employment (APR)

195K

156K

Gross Domestic Product (Annualized) (QoQ) (1Q A)

0.7%

0.5%

However, the slowdown in job growth paired with signs of a slowing recovery may drag on household spending, and another unexpected decline in retail sales may drag on the greenback as market participants push out bets for a Fed rate-hike.

How To Trade This Event Risk(Video)

Bullish USD Trade: Retail Sales Rebounds 0.8% or Greater

  • Need red, five-minute candle following the print to consider a short trade on EUR/USD.
  • 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 the opposite direction.

Potential Price Targets For The Release

EURUSD Daily

EUR/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • A positive development may spur a near-term decline in EUR/USD as it remains stuck within a short-term downward trending channel, but the formation may ultimately turn out to be a continuation pattern (bull-flag) as the pair appears to be a in a long-term bottoming process.
  • Interim Resistance: 1.1760 (61.8% retracement) to 1.1810 (38.2% retracement)
  • Interim Support: Interim Support: 1.0380 (78.6% expansion) to 1.0410 (61.8% expansion)

Check out the short-term technical levels that matter for EUR/USD heading into the report!

Avoid the pitfalls of trading by steering clear of classic mistakes. Review these principles in the "Traits of Successful Traders" series.

Impact that the U.S. Advance 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)

MAR 2016

04/13/2015 12:30 GMT

0.1%

-0.3%

+22

+19

March 2016 U.S. Advance Retail Sales

EUR/USD Chart

U.S. Retail Sales missed market expectations in March, with household spending unexpectedly contracting 0.3% after increasing a revised 0.2% the month prior. A deeper look at the report showed demand for motor vehicle & parts slipped 2.1% to lead the decline, with discretionary spending on clothing falling 0.9%, while sales of building materials increased another 1.4% in March. The greenback lost ground following the weaker-than-expected report, with EUR/USD coming off of the 1.1250 region to end the day at 1.1271.

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Read More:

Record Trend Following Long Position in Gold

AUD/CAD Into Key Support- Monthly Opening Range In Focus

US Dollar Bear Trap within an Even Bigger Bull Trap?!

USD/JPY Technical Analysis: Has It Bottomed?

--- Written by David Song, Currency Analyst

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.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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