Can US Retail Sales change the habit and give the dollar a boost?

Retail Sales are a big mover of the US dollar. With consumption accounting for round 70% of the US economy, it is important for Fed to know that the man on the street is still spending money if the committee is to start hiking interest rates. Over the past 12 months, retail sales have been a rather disappointing release and the dollar has reacted accordingly. The recent US economic data has shown a general trend of improvement. Will US Retail Sales take the wind out of the sails of the dollar bulls today?

salesRetail Sales has traditionally made a sizeable impact on EUR/USD. In the last 12 months, the announcement of retail sales has moved EUR/USD on average around 50 pips in the hour following the release.

On a month on month basis, in the past 12 months retail sales (ex-autos, which is the core data) has MISSED expectations in 9 out of 12 months (with only 3 months where is has beaten the consensus forecasts according to Reuters data). This has therefore tended to result in a move higher on EUR/USD.

Furthermore, in 2015 as the Fed has become “data dependent” the impact has become even greater, with a significant impact (over 80 pips) in four of the five releases (the only month where there was a negligible reaction was in March). The problem is that the data has missed expectations every month in 2015. This has meant that every month, we have seen an upside reaction to EUR/USD (i.e. in the direction of the surprise).

retailThe expectation this afternoon is that core Retail Sales will be +0.7% on the month. The year on year data has been in decline now since the back end of last year. However, if the expectations were to be hit, it mean year on year growth would improve to +0.6% and it would be the first uptick in year on year retrail sales since October.

The price of EUR/USD is currently down 80 pips on the day already as the bullish intent of Monday and Tueday has dissipated. Perhaps the market is now moving to factor in a better announcement of retail sales. If so, a positive surprise would give the dollar bulls something to be happy about and help drag the pair even lower. A close below $1.1200 would also be a corrective signal tonight too.


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