TheNews

- U.S. Advance Retail Sales to Contract for Second Consecutive Month.
- Will Lower Energy Prices Help Boost Private-Sector Consumption?

Trading the News: U.S. Advance Retail Sales

Another contraction in U.S. Retail Sales may drag on the greenback and generate a near-term rebound in EUR/USD as it dampens the Fed’s scope to raise the benchmark interest rate in mid-2015.

What’s Expected:



Why Is This Event Important:

The Fed may have little choice but to further delay its normalization cycle as lower energy costs show little evidence of boosting private-sector consumption, and we may see the central bank implement a more dovish twist to the forward-guidance for monetary policy as it struggles to achieve the 2% target for inflation.

Expectations: Bearish Argument/Scenario

Release	Expected	Actual
Consumer Credit (DEC)	$15.000B	$14.755B
Personal Spending (DEC)	-0.2%	-0.3%
Gross Domestic Product (Annualized) (QoQ) (4Q A)	3.0%	2.6%

The ongoing slowdown in private-sector lending may weigh on household consumption, and a dismal retail sales report may undermine the bullish sentiment surrounding the dollar as it drags on interest rate expectations.

Risk: Bullish Argument/Scenario

Release	Expected	Actual
Non-Farm Payrolls (JAN)	228K	257K
Average Hourly Earnings (YoY) (JAN)	1.9%	2.2%
Personal Income (DEC)	0.2%	0.3%

Nevertheless, the pickup in job/wage growth may pave the way for a better-than-expected print, and a positive development may spark a bearish reaction in EUR/USD as market participants ramp up bets for higher borrowing-costs.

How To Trade This Event Risk

Bearish USD Trade: U.S. Retail Sales Falls Another 0.4% or Greater

• Need green, five-minute candle following the release to consider a long trade on EUR/USD.
• If market reaction favors a bearish dollar trade, buy EUR/USD with two separate position.
• Set stop at the near-by swing low/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.

Bullish USD Trade: Private Consumption Exceeds Market Forecast

• Need red, five-minute candle to favor a short EUR/USD trade.
• Implement same setup as the bearish dollar trade, just in reverse.

Potential Price Targets For The Release
EUR/USD Daily

• Long-term outlook for EUR/USD remains bearish as the RSI retains the downward trend carried over from back in October 2013.
• Interim Resistance: 1.1600 pivot to 1.6110 (61.8% expansion)
• Interim Support: 1.1096 (2015 low) to 1.1100 pivot

Impact that the U.S. 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)
DEC 2014	01/14/2014 13:30 GMT	-0.1%	-0.9%	+30	-1

U.S. Retail Sales contracted 0.9% in December, largely driven by lower gas receipts, after climbing a revised 0.4% the month prior. Despite the worse-than-expected print, it seems as though the Fed remains confident in raising the benchmark interest rate in mid-2015 as the central bank anticipates falling oil prices to have a positive impact on the economy as it boosts disposable incomes. Nevertheless, the dollar struggled to hold its ground following the print, with EUR/USD climbing above the 1.1825 region, but the market reaction was short-lived as the pair consolidated throughout the North America trade to end the day at 1.1773.

--- Written by David Song, Currency Analyst and Shuyang Ren

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