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EUR/USD to Stage Larger Pullback on Upbeat U.S. Retail Sales Report

EUR/USD to Stage Larger Pullback on Upbeat U.S. Retail Sales Report

2016-08-12 08:00:00
David Song, Strategist
Share:

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

- Will Stronger Consumption Spur Larger Dissent Within FOMC?

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

Trading the News: U.S. Advance Retail Sales

Another 0.4% rise in U.S. Advance Retail Sales may boost the appeal of the greenback and spark a near-term decline in EUR/USD as it puts pressure on the Federal Open Market Committee (FOMC) to further normalize monetary policy in 2016.

What’s Expected:

DailyFX Calendar

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Why Is This Event Important:

Despite limited expectations for September Fed rate-hike, a pickup in private-sector consumption, one of the leading drivers of growth and inflation, may spur a greater dissent at the next quarterly meeting as central bank officials see a risk of overshooting the 2% target for price growth. However, the majority may attempt to buy more time especially ahead of the U.S. Presidential election in November as Chair Janet Yellen appears to be in no rush to implement higher borrowing-costs.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Non-Farm Payrolls (JUL)

180K

255K

Challenger Job Cuts (YoY) (JUL)

--

-57.1%

Consumer Confidence (JUL)

96.0

97.3

Improved confidence accompanied by the pickup in job growth may boost household spending, and a marked increase in U.S. Retail Sales may spur a bullish reaction in the greenback as it fuels interest-rate expectations.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Consumer Credit (JUN)

$16.000B

$12.320B

Average Hourly Earnings (YoY) (JUL)

2.6%

2.6%

Personal Income (JUN)

0.3%

0.2%

However, subdued wage growth paired with the slowdown in private-sector lending may drag on consumption, and a dismal development may produce near-term headwinds for the dollar as market participants push out bets for the next Fed rate-hike.

How To Trade This Event Risk(Video)

Bullish USD Trade: U.S. Retail Sales Rises 0.4% or Greater

  • Need red, five-minute candle following the NFP 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: Private-Sector Consumption Fails to Meet 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
  • EUR/USD may continue to consolidate over the coming days as it appears to be stuck in a wedge/triangle formation, but the pair stands at risk of extending the advance carried over from back in December especially as the Relative Strength Index (RSI) breaks out of the bearish trend from earlier this year.
  • Key Resistance: 1.1760 (61.8% retracement) to 1.1810 (38.2% retracement)
  • Key Support: Interim Support: 1.0380 (78.6% expansion) to 1.0410 (61.8% expansion)

Check out the short-term technical levels that matter for USD/JPY 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)

JUN 2016

07/15/2016 12:30 GMT

0.1%

0.6%

-58

-103

June 2016 U.S. Advance Retail Sales

EUR/USD 5-Minute

EUR/USD Chart

U.S. Retail Sales increased another 0.6% in June after expanding a revised 0.2% the month prior, led by a 3.9% pickup in demand for building materials. Moreover, department store sales bounced back 0.7% during the same period, with gasoline receipts climbing 1.2%, while discretionary spending on clothing slumped 1.0% following the 0.8% expansion in May. The better-than-expected report propped up the greenback, with EUR/USD slipping below the 1.1100 handle to end the day at 1.1028.

Get our top trading opportunities of 2016 HERE

Read More:

COT-Record British Pound Ownership Profile

GBP/JPY Technical Analysis: Tug-of-War at the ’Brexit-Low’

WTI Crude Oil Price Forecast: Bear Market Prompts OPEC Meeting

Weekly Technicals: NZD/USD - Bye Bye Birdie

--- 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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