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USDJPY Sets Fresh July Lows After Disappointing US Advance Retail Sales

USDJPY Sets Fresh July Lows After Disappointing US Advance Retail Sales

Christopher Vecchio, CFA, Senior Strategist

THE TAKEAWAY: US Advance Retail Sales (JUN) > -0.5% versus +0.2% expected, from -0.2% > USDJPY BEARISH

The US consumer continues to weaken, the most recent retail sales report showed today. The Advance Retail Sales release, perhaps the best gauge of consumption and consumer confidence for the US economy, showed contraction of 0.5% versus expected growth of 0.2% in June. A recently weak labor market has prompted consumers to pare back spending habits as employment prospects decline: jobs growth fell to +75.0K in the second quarter from +192.3K in the first quarter of 2012.

The decline in the retail sales report is hardly a surprise, however. Stagnant wage growth alongside rising price pressures, combined with the lowest savings rate in four-years, will force consumers to either take on debt to finance spending or to trim spending altogether; today’s report suggests the latter is taking place. The heightened uncertainty around the US “fiscal cliff” – quickly approaching in five-months – has also prompted consumers to pare back their spending habits. Without a recovery in spending – and thus US Advance Retail Sales – the US economy will not be able to move forward: consumption accounts for approximately 70 percent of the headline US GDP figure.

USDJPY 1-minute Chart: July 16, 2012

USDJPY_Sets_Fresh_July_Lows_After_Disappointing_US_Advance_Retail_Sales_body_Picture_1.png, USDJPY Sets Fresh July Lows After Disappointing US Advance Retail Sales

Charts Created using Marketscope – Prepared by Christopher Vecchio

In the wake of the release, market participants shed their US Dollar holdings, with the world’s reserve currency falling across the board, but most notably against the Japanese Yen. The USDJPY plummeted quickly from 79.02 to as low as 78.82, shortly after the release. The USDJPY is currently trading under its 200-DMA (79.02) for the first time since June 18. A daily close below said level brings 78.60 into focus, the mid-June swing lows, and a break below offers targets towards the June 1 low at 77.66.

--- Written by Christopher Vecchio, Currency Analyst

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