U.S. advance retail sales are expected to fall by 0.5% after January’s unexpected 1.0% gain, as a weak labor market is expected to weigh on demand. The U.S. saw unemployment rise to 8.1% during the month as the economy lost another 651,000 jobs. Last month’s saw clothing and electronics sales rise by 1.6% and 2.6% respectively, as retailers slashed prices.
[B]Fundamental Outlook[/B]
U.S. advance retail sales are expected to fall by 0.5% after January’s unexpected 1.0% gain, as a weak labor market is expected to weigh on demand. The U.S. saw unemployment rise to 8.1% during the month as the economy lost another 651,000 jobs. Last month’s saw clothing and electronics sales rise by 1.6% and 2.6% respectively, as retailers slashed prices. Additionally, the stabilization of gasoline prices saw sales at the pump increase by 2.6%. The impact of these factors most likely lessened in February and components like home building materials and automobile purchases are expected to have remained weak. Therefore, we could see a larger than expected decline in consumer consumption which could reignite risk aversion and lend dollar support. However, cash strapped consumers could have rushed to acquire their tax rebates which could have a positive impact on demand and lead to a consecutive month of improves retail sales. The increase in domestic demand would add to recent risk appetite and could lead to the greenback trading heavy. This would validate the bearish dollar technical outlook which is calling for a test of 1.33 for the EUR/USD.
[B]Technical Outlook [/B]
Quite simply, the series of higher highs and higher lows since early March is bullish. I have written recently that “know that once the turn occurs, it will be fast…there are 2 areas to look for longs; the low side of the diagonal line and a break of the top side.” The top side of the diagonal line has been broken (arrow) and the advance is expected to accelerate in the coming days. Short term support is at 1.2750. The minimum target, which may take a few weeks to be reached, is 1.33. Bulls can move risk to 1.2614.
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[I]To discuss this report contact John Rivera, Currency Analyst: [email protected][/I]