[B]Trading the News: US Advance Retail Sales[/B]
[B][U]What is Expected[/U][/B]
Time of release: [B]09/14/2007 12:30 GMT, 08:30 EST[/B]
Primary Pair Impact : [B]EURUSD[/B]
[B]How To Trade This Event Risk[/B]
The advanced retail sales report has consistently held one of the top market-moving spots on the US Dollar?s indicator list over the past few years. The market reaction to the past few sales releases seems to suggest that this indicator has lost some of its fundamental influence; but recent market conditions and concerns will likely leverage the interest in paid to this release. In the past few weeks, dollar traders have been put on edge with general liquidity concerns lending the greenback a reserve currency status while heavy debate over the FOMC?s next rate decision has raised the possibility of a 25 (or even 50) basis point cut. The argument over next Tuesday?s rate decision is arguable centered on the strength of the consumer. Despite a rising default rate among subprime, Alt-A and even higher quality mortgages and a sharp drop in US equity markets recently; the Federal Reserve?s policy makers will likely cast their vote based solely on their projections for economic growth and inflation (as per their mandate). Therefore, a forecasted drop in consumer spending habits would likely increase the need for swift action. If this economic pillar crumbles, expectations for multiple rate cuts this year will increase substantially.
Considering the current market consensus for the August retail sales report is for a 0.5 percent increase, the market may be conditioned for a strong release. However, after seeing the biggest drop in consumer confidence in two years through the same period and calls for a Fed rate cut growing louder every day, a better than expected report will likely stir bulls despite the official forecast. A positive release and five minute red candle would initiate a short trade for two lots. An initial stop should be set at the nearby swing high (or a reasonable fixed distance) with a target on the first lot set equal to its risk. When that half of the trade takes profit, move the stop on the second up to break even. The objective on the second lot should be discretionary and based on factors like the severity of the fundamental surprise, volatility, price action and reaction to technical levels.
Weaker than expected sales (or optimally, a drop) would open the doors to a long EURUSD trade. A drop in spending would likely stoke fears that the Fed would perhaps cut rates by 50 basis points next week or perhaps indicate that they are now entering a cutting cycle.