Consumer spending in Germany is expected to hold flat in May as households face a weakening labor market paired with tightening credit conditions, and fears of protracted downturn could drag on the exchange rate as investors weigh the outlook for future policy.Trading the News: German Retail Sales
[U][B]Trading the News: German Retail Sales[/B][/U]
[B]What’s Expected[/B]
Time of release: [B]07/01/2009 06:00 GMT, 02:00 EST
[/B]Primary Pair Impact : [B]EURUSD
[/B]Expected: 0.0%
Previous: 0.5%
[U][B]Impact the German Retail Sales has had on EURUSD over the last 2 months
[/B][/U]
[B]Period[/B]
[B]Data Released[/B]
[B]Estimate[/B]
[B]Actual[/B]
[B]Pips Change[/B]
[B](1 Hour post event )[/B]
[B]Pips Change[/B]
[B](End of Day post event)[/B]
Apr 2009
05/29/2009 06:00 GMT
0.5%
[B]0.5%[/B]
-8
+162
Mar 2009
05/04/2009 06:00 GMT
0.2%
[B]-1.0%[/B]
+6
+99
[U]
April 2009 German Retail Sales[/U]
Consumer spending in Germany rose for the first time in four months during April, with sales increasing 0.5% from the previous month, and growth prospects may continue to improve over the second-half of the year as the government takes unprecedented steps to steer the economy out of its worst economic downturn in over half a century. The breakdown of the report showed private spending excluding auto sales increased at a nominal rate of 0.9%, with demands for furniture rising 2.8%, while discretionary spending on food and tobacco slumped 1.1% from March. The data suggests households are becoming less pessimistic towards the economy as policymakers employ unconventional tools to stimulate the ailing economy however, as the Bundesbank forecasts economic activity to contract 6.2% this year, the near-term outlook for growth and inflation remains bleak.
[U]March 2009 German Retail Sales[/U]
German retail sales unexpectedly fell 1.0% in March to mark the third consecutive monthly decline, and conditions are likely to get worse as households face a weakening labor market. A deeper look into the report showed auto purchases plunged 6.5% from the previous month, with demands for clothing and shoes falling 4.4%, while discretionary spending on food and tobacco increased 1.8%. As a result, Bundesbank President Axel Weber said economic activity is likely to remain subdued throughout the year, and expects a tepid recover in 2010 as the outlook for growth and inflation remains bleak. As a result, the European Central Bank widely expected to ease policy further later this month, and is likely to cut the benchmark interest rate by another 25bp to a record low of 1.00% in an effort to soften the landing of the economy.
[B]What To Look For Before The Release[/B]
Traders with access to market depth information via the FXCM Active Trader Platform may use it to gauge the potency of the economic data release as well as to shed some light on the market’s directional bias. Increasing volume ahead of the announcement will telegraph likely follow-through behind whatever move is to materialize, while an imbalance in available liquidity on the Bid versus the Offer side of the market will tell us the direction major institutions are likely favoring ahead of the announcement:
[U][B]Bullish Scenario:[/B][/U]
If we see substantially deeper available liquidity on the Bid side of the market, this tells us that major price providers in the market are looking to buy the Euro against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bullish bias on EURUSD ahead of the data release.
[U][B]Bearish Scenario:[/B][/U]
If we see substantially deeper available liquidity on the Offer side of the market, this tells us that major price providers in the market are looking to sell the Euro against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bearish bias on EURUSD ahead of the data release.
[B]
How To Trade This Event Risk [/B]
Consumer spending in Germany is expected to hold flat in May as households face a weakening labor market paired with tightening credit conditions, and fears of protracted downturn could drag on the exchange rate as investors weigh the outlook for future policy. At the same time, a report by the Federal Labor Agency showed unemployment rose less than expected during the two-months through June, while the GfK consumer confidence survey improved for the second consecutive month in July, and the data encourages an enhanced outlook for future growth as the government takes unprecedented steps to stimulate the ailing economy. Nevertheless, the German central bank forecasts economic activity to contract at an annual rate of 6.2%, with Bundesbank President Axel Weber stating that ‘the crisis is likely to put a strain on global financial markets and the real sector for some time to come,’ and the comments reinforce a dour outlook for private spending as the bank forecasts unemployment to reach an annual rate of 4.4M next year. In addition, Mr. Weber went onto say that ‘the overall situation remains very fragile and vulnerable’ as the region faces its worst economic downturn since World War II, and concluded that the economy is still ‘far away’ from a sustainable recover as growth prospects deteriorate. A government report showed the trade surplus narrowed to 9.4B from 11.3B in March as exports plunged 4.8%, while imports unexpectedly slipped 5.8% from the previous month as consumers curbed demands for foreign goods. Moreover, industrial outputs unexpectedly declined 1.9% in April, while factory orders fell at an annual pace of 37.1% in April to mark the second-biggest decline on record, and the downturn in global trade is likely to weigh on economic activity going forward as businesses face fading demands from home and abroad. Meanwhile, a Bloomberg survey shows 58 of the 60 economists polled project the European Central Bank to hold the benchmark interest rate steady at the record-low of 1.00% later this week as policymakers anticipate economic activity to improve later this year however, as the Shadow ECB sees scope for lower borrowing in the Euro-Zone, the Governing Council may keep the door open for a rate cut as growth and inflation falter.
Trading the given event risk may not be as clear cut as some of our previous trade but nevertheless, the rebound in consumer sentiment paired with the easing downturn in the labor market could spur a rise in private consumption as the government takes unprecedented steps to shore up the economy. Therefore, if retail sales rise 0.2% or more, we will look for a green, five-minute candle following the release to confirm a buy entry on two-lots of EUR/USD. Once these conditions are met, we will place our initial stop at the nearby swing low (or reasonable distance), and this risk will establish out first target. Our second objective will be based on discretion, and in an effort to preserve our profits, we will move the stop on the second lot to breakeven once the first trade reaches its target.
On the other hand, fears of a protracted recession paired with expectations for higher unemployment may lead consumers to scale back on consumption as economic activity contracts at a record pace, and a dismal sales report is likely to weigh on the exchange rate as growth prospects deteriorate. As a result, a drop of 0.2% or more in retail sales would favor a bearish outlook for the single-currency, and we will follow the same setup for a short euro-dollar trade as the long position mentioned above, just in reverse.
