Talking Points:
- US Retail Sales data beat expectations throughout, despite downwad revisions to previous data.
- Headline and Core CPI both improved meaningfully from last month, although Headline grew less than expected.
-EUR/USD falls sharply as the USD strengthens on the news; USD/CAD spikes higher.
June US Advance Retail Sales surprised strongly to the upside throughout the report. Retail sales grew at +0.6%, beating expectations of +0.1% (m/m) for the headline. This strength continued into the depths of the report as Retail Sales Less Autos grew at +0.7%, beating expectations of +0.4%, and Less Autos and Gas grew at +0.7%, beating expectations of +0.3%. Overall, signs that the engine of the US economy – consumption (roughly 72% of GDP) – is improving is welcomed news for the US Dollar.
The other major data release of the morning, the June US Consumer Price Index, was also better than expected, although just slightly overall. Core CPI (ex Food and Energy) grew +2.3% from a year earlier, beating expectations of +2.2% (y/y), and +0.2% from a month earlier, as expected. Headline prices grew at a strong rate, 0.2% from last month, but below expectations of 0.3% (m/m), and fell from +1.1% to +1.0% (y/y). Headline growth was pulled up by strong increases in energy costs but were dragged down by negative growth in food costs.
Strong consumer spending data, especially core consumer spending data, and further firming in inflation should continue to put pressure on the Federal Reserve’s interest rate path. While certainly not a trigger for the Fed, this morning’s data adds to the increasingly confusing picture of data that the Fed is taking into consideration, adding to the dilemma of strains in financial markets versus strong economic fundamentals. Reflexively, a wave of strong US economic data mid-year before clarity to the Brexit situation could be setting up a “honey trap” for the Fed.
Here are the data that’s lifting the US Dollar this morning:
- USD Advanced Retail Sales (JUN): +0.6% versus +0.1% expected, from +0.5% (m/m).
- USD Consumer Price Index (JUN): +1.0% versus +1.1% expected, from +1.0% (y/y).
- USD Core Consumer Price Index (JUNE): +2.3% versus +2.2% expected, from +2.2% (y/y).
See the DailyFX economic calendar for Friday, July 15, 2016
Chart 1: EUR/USD 1-minute Chart (July 15, 2016 Intraday)
In the immediate wake of the data, the US Dollar rose sharply against the Euro, with the EUR/USD falling to $1.0912 from $1.1428. By the time this report was written, the pair had recovered slightly to $1.1116. With FX volatility edging higher again, it’s the right time to review risk management principles to protect your capital.
See the above video for an archive of this morning’s webinar coverage of the US economic data with Currency Strategist Christopher Vecchio.
Read more: GBP Rally After BOE Viewed with Caution - August Easing Eyed
--- Written by Christopher Vecchio, Currency Strategist and Omar Habib, DailyFX Research
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
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To contact Omar Habib, e-mail ohabib@dailyfx.com
