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EUR/USD at Risk for Further Losses on Strong U.S. Retail Sales Report

EUR/USD at Risk for Further Losses on Strong U.S. Retail Sales Report

2016-10-14 08:00:00
David Song, Strategist
Share:

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

- Will a Rebound in Private-Consumption Boost Bets for a December Fed Rate-Hike?

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

Trading the News: U.S. Advance Retail Sales

A 0.6% rebound in U.S. Advance Retail Sales may heighten the appeal of the greenback and spark 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

Click Here for the DailyFX Calendar

Why Is This Event Important:

A marked pickup in private-sector consumption, one of the leading drivers of growth & inflation, may spur a greater dissent at the Fed’s next interest rate decision on November 2 especially as the U.S. economy approaches ‘full-employment.’ However, another dismal sales report may dampen the economic outlook and undermine market expectations for a December Fed rate-hike as Chair Janet Yellen appears to be in no rush to further normalize monetary policy. With that said, the fresh comments from the central bank head may set the tone for the week ahead as Fed Funds Futures continue to highlight a greater than 60% probability for a policy move at the end of the year.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Consumer Credit (AUG)

$16.500B

$25.873B

Average Hourly Earnings (YoY) (SEP)

2.6%

2.6%

Consumer Confidence (SEP)

99.0

104.1

Improved confidence accompanied by the ongoing expansion in private-sector credit may boost household spending, and a strong sales report may spark a bullish reaction in the dollar as it encourages the FOMC to further normalize monetary policy in 2017.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

JOLTS Job Openings (AUG)

5800

5443

Non-Farm Payrolls (SEP)

172K

156K

Construction Spending (MoM) (AUG)

0.3%

-0.7%

Nevertheless, easing job growth accompanied by signs of a slowing recovery may push U.S. households to scale back on consumption, and a dismal development may produce headwinds for the greenback as market participants push out bets for the next Fed rate-hike.

How To Trade This Event Risk(Video)

Bullish USD Trade: Retail Sales Rebounds 0.6% or Greater

  • Need red, five-minute candle following the data print to favor a short position 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: U.S. Consumption Report Disappoints

  • Need a green, five-minute candle to favor a long EUR/USD trade.
  • Implement same strategy as the bullish dollar trade, just in the opposite direction.

Potential Price Targets For The Release

EUR/USD Daily

EUR/USD Daily Chart

Chart - Created Using Trading View

  • The near-term series of lower highs & lows may push EUR/USD back towards the July low (1.0951), with a break/close below the Fibonacci overlap around 1.0940 (61.8% retracement) to 1.0970 (38.2% retracement) casting a more bearish outlook for the pair especially as it struggles to preserve the upward trend from earlier this year.
  • Interim Resistance: 1.1428 (June high) to 1.1460 (78.6% retracement)
  • Interim Support: 1.0910 (38.2% retracement) to 1.0912 (June low)

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

Impact that the U.S. Retail Sales reporthas had on EUR/USD during the last release

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

AUG

2016

09/15/2016 12:30 GMT

-0.1%

-0.3%

-12

-18

August 2016 U.S. Advance Retail Sales

EUR/USD 5-Minute

EUR/USD Chart

U.S. Retail Sales fell 0.3% in August after climbing a revised 0.1% the month prior, with the decline larger led by a 1.4% contraction in demand for sporting goods and building materials. A deeper look at the report showed gasoline receipts dropping another 0.8% in August, with demand for motor vehicle and parts narrowing 0.9%, while discretionary spending on clothing increased 0.7% during the same period. The initial market reaction was short-lived, with EUR/USD pulling back from 1.1284 to end the day at 1.1241.

Get our top trading opportunities of 2016 HERE

Read More:

USD/JPY Exhaustion Shifts Focus to Uptrend Support

COT-Extreme Changes in Gold and Crude Positioning

USD/CAD Technical Analysis: With Oil Above $50, Could Loonie Liftoff?

Market Move Approaching: S&P 500, Nasdaq 100 & Dow in View

USD/CAD Plunges as Russia Signals Readiness to Cap Oil Production

--- 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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