Retail spending in the U.S. is expected to increase 0.5% in May, driven by a rebound in auto sales, and economic conditions may improve throughout the second half of the year as business cut back on employment and production at a slower pace.
[U][B]Trading the News: U.S. Advance Retail Sales [/B][/U]
[U][B]What’s Expected[/B][/U]
Time of release: [B]06/11/2009 12:30 GMT, 08:30 EST[/B]
Primary Pair Impact : [B] EURUSD[/B]
Expected: 0.5%
Previous: -0.4%
[U][B]
Impact the U.S. retail sales report had over EURUSD for the past 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
05/13/2009 12:30 GMT
0.0%
[B]-0.4%[/B]
-1
+6
Mar 2009
04/14/2009 12:30 GMT
0.3%
[B]-1.1%[/B]
+2
+1
[U]April 2009 U.S. Advance Retail Sales
[/U]
Personal spending in the U.S. fell 0.4% in April amid expectations for a flat reading, and conditions are likely to get worse as the nation faces its worst economic downturn in over half a century. A deeper look at the report showed sales of electronic goods slumped 2.8% from the previous month, with discretionary spending on food and beverages falling 1.0%, while gasoline receipts slipped 2.3% from the previous month on higher oil prices. The data suggests households will continue to scale back on consumption as they face a weakening labor market paired with fears of a deepening downturn, and policymakers could be forced to take additional steps to shore up the economy as growth prospects deteriorate. Meanwhile, Treasury Secretary Tim Geithner held an improved outlook for the world’s largest economy, stating that ‘concerns about systemic risk has diminished, ‘ with credit conditions starting to ‘improve.’
[U]March 2009 U.S. Advance Retail Sales
[/U]
U.S. retail sales unexpectedly plunged 1.1% in March after rising 0.3% in the previous month, and conditions are likely to get worse as households continue to face a weakening labor market paired with tightening credit conditions. The breakdown of the report showed demands for electronics fell 5.9% during the month, while sales of motor vehicles slumped 2.3%, and receipts at restaurants and bars slipped 1.4% from the previous month to mark the biggest contraction since March 2005. The data foreshadows a dour outlook for the second quarter as private-sector spending deteriorates, and businesses may continue to scale back on production and employment as trade conditions falter. As a result, the FOMC pledged to hold the benchmark interest rate at ‘low levels’ for some time in order to stem the downside risks for growth and inflation, and said that price pressures ‘remain subdued’ as a result of the downturn in the global 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]
Retail spending in the U.S. is expected to increase 0.5% in May, driven by a rebound in auto sales, and economic conditions may improve throughout the second half of the year as business cut back on employment and production at a slower pace. Nevertheless, fears of a prolonged recession paired with the rising trend in the savings rate could lead to an unexpected fall in private consumption, and a dismal sales reading could stoke demands for the U.S. dollar as the reserve currency continues to benefit from safe haven flows. The preliminary 1Q GDP reading showed economic activity fell the most in five-decades during the last two quarters as businesses reduced stockpiles of unsold goods at the fastest pace since recordkeeping began in 1947, while the personal savings rate jumped to an annualized rate of 4.4% from 3.2% in the fourth quarter, and the data encourages a weakening outlook for future growth as households allocate more of their net income into savings. Moreover, consumer credit plunged 7.4% in April, which is the second-biggest decline on record, with non-revolving credit falling for the second consecutive month, and credit conditions may get worse as banks continue to scale back on lending practices. At the same time, a report by the Labor Department showed non-farm payrolls in May fell at its slowest pace in eight months, while the jobless rate pushed to a 26-high of 9.4% as an increased number of unemployed individuals returned to the labor force, and the rebound in consumer confidence suggests households are holding an improved outlook for future growth as policymakers take unprecedented steps to soften the landing of the world’s largest economy. Furthermore, domestic auto sales unexpectedly increased to an annualized rate of 7.4M in May from 7.0M in the previous month, while the Conference Board’s leading indicator jumped 1.0% in April to mark the biggest advanced since November 2005, and the rebound in the economic outlook is likely to reinforce long-term expectations for higher interest rates as the Federal Reserve maintains its dual mandate to ensure price stability and full employment. Meanwhile, the FOMC lowered its growth forecasts in April and projects a slower recovery in 2010, with the meeting minutes showing some members of the governing board raising arguments to increase the scope of the Fed’s asset purchase program in order to ‘spur a more rapid pace of recovery.’ As the central bank anticipates growth prospects to remain subdued throughout the year and forecast unemployment to reach an upper limit of 10.0%, the government may continue to take additional steps to stimulate the ailing economy, and investors may hold a bearish forecast for the greenback as they weigh the outlook for future policy.
Expectations for a rise in household spending favors a bullish outlook for the greenback as growth prospects improve, and price action following the release could set the stage for a long dollar trade. Therefore, if retail sales rises 0.5% or more in May, we will look for a red, five-minute candle subsequent to the release to confirm a sell entry on two-lots of EUR/USD. Once these conditions are met, we will place our initial stop at the nearby swing low, or a reasonable distance taking volatility into account, and this risk will establish our first target. Our second target 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.
In contrast, the rise in the personal savings rate paired with the dour outlook held by the Fed could lead to a drop in retail demands as the nation faces a deepening recession, and the unexpected drop during the last two months have left the door open for a dismal sales report. As a result, if retail sales drops 0.2% or more from the previous month, we will favor a bearish outlook for the greenback, and will follow the same setup for a long euro-dollar trade as the short position mentioned above, just in reverse.
