US Dollar Price Volatility Report: USD/JPY Eyes Retail Sales Data
US DOLLAR PRICE OUTLOOK AT RISK AHEAD OF RETAIL SALES REPORT DUE FOR RELEASE:
- USD price outlook over the near-term hinges on the release of US retail sales data, due Friday at 13:30 GMT, which will speak to the overall health of the American consumer and US economy
- The US Dollar – specifically USD/JPY – could come under pressure if the latest US retail sales report disappoints and causes a material repricing of future FOMC rate cut expectations
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So far this week, the US Dollar has struggled to extend its rebound from the steep slide recorded throughout October. While the ongoing claw back attempt has been impressive so far – considering the DXY Index advanced for 5-days straight last week – it was noted in the US Dollar Price Volatility Report published this past Friday that USD price action faced notable levels of technical resistance that stand to deter further advances.
Such still seems to be the case with the DXY Index failing to surmount the zone of confluent resistance near the 98.50 mark. At the same time, the US Dollar Index enjoys plentiful support around the 98.00 handle, which has so far kept USD price action broadly afloat. Consequently, the world’s reserve currency has seesawed between these major technical levels as forex traders await the next catalyst to come along that sparks the next big move in the US Dollar. That said, the release of high-impact US retail sales data due Friday at 13:30 GMT could provide the Greenback with the necessary conviction to breakout from its recent trading range.
US DOLLAR INDEX PRICE CHART: DAILY TIME FRAME (APRIL 11, 2019 TO NOVEMBER 14, 2019)
Technical resistance faced by the US Dollar Index is highlighted by its 50-day simple moving average and 38.2% Fibonacci retracement level of its trading range since June 25. A lack of bullish impetus throughout the week has caused both the RSI and MACD technical indicators to recede from their recent surge higher, which underscores fading upward momentum and suggests a protracted retracement lower may be on the horizon. Nevertheless, confluence support in addition to the 98.00 handle is underpinned by the mid-point retracement of the aforementioned bullish leg near the 97.75 area and will look to keep weakness in USD price action limited.
CHART OF US RETAIL SALES (MONTH-OVER-MONTH)
The market consensus expects a 0.2% month-over-month rise in headline US retail sales for October and 0.3% increase in retail sales excluding gas and auto purchases. This compares to the prior period’s readings of -0.3% and 0.0% respectively. US consumers could be clamping down on their purse strings in response to recent recession fears induced by US-China trade war uncertainty and slowing global GDP growth.
Another factor that may exacerbate a drop in retail sales growth could be due to a pause in consumer spending ahead of the holiday shopping season. Nevertheless, a material surprise to the downside stands to deal a serious blow to top retail stocks, the US Dollar and broader risk appetite. On the other hand, a materially better-than-expected US retail sales report could bolster the Greenback and underscore the Fed’s firming monetary policy stance communicated recently.
CHART OF US TREASURY YIELD CURVE (10-YEAR LESS 2-YEAR INTEREST RATE SPREAD)
If the upcoming retail sales report does cause a dramatic shift in market sentiment it will likely be reflected in the infamous 2s10s Treasury yield curve spread – Wall Street’s favorite recession indicator. Resurfacing recession fears, if prompted by dismal retail sales data, would likely cause a compression in the difference between the 10-Year Treasury yield and 2-Year Treasury yield considering that US consumers are the backbone of America’s economy.
That could then, in turn, cause an aggressive repricing of FOMC rate cuts which stands to weigh negatively on the US Dollar. Correspondingly, spot USD/JPY price action comes into focus seeing that this currency pair is largely driven by risk appetite and changes in interest rate expectations.
USD/JPY PRICE CHART: DAILY TIME FRAME (MAY 26, 2019 TO NOVEMBER 14, 2019)
I noted earlier this week that the USD/JPY chart faced a looming reversal where I also pointed out the bearish rising wedge technical pattern. Spot USD/JPY prices have since pierced the rising support line connecting the higher lows recorded August 26, early October and November 01.
However, the US Dollar so far seems to be finding support around the 50-DMA and 23.6% Fib of spot USD/JPY’s trading range since August’s swing low. That said, USD/JPY overnight implied volatility of 5.7% can be used to estimate its options-implied trading range of 108.03-108.67, which should encompass spot price action with a 68% statistical probability.
US DOLLAR IMPLIED VOLATILITY & TRADING RANGES (OVERNIGHT)
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