U.S. retail sales in April are expected to have remained flat following a 1.2% drop the month prior. The U.S. consumer has become increasingly optimistic evidenced by the rise in the University of Michigan consumer sentiment reading to 65.1 from 61.9. Additionally, the labor market has started to see as slowdown in its contraction with Non-farm payrolls and initial jobless claims both beating expectations last week.
[B]Fundamental Outlook[/B]
U.S. retail sales in April are expected to have remained flat following a 1.2% drop the month prior. The U.S. consumer has become increasingly optimistic evidenced by the rise in the University of Michigan consumer sentiment reading to 65.1 from 61.9. Additionally, the labor market has started to see as slowdown in its contraction with Non-farm payrolls and initial jobless claims both beating expectations last week. Although, the economy lost over a half million jobs in April which is never a positive for consumer consumption it was the fewest in six months. Also, easing credit conditions will help consumers generate the needed funds for purchases that they have put off since the crisis began. There is a lot of built up demand and we may start to see it flow through over the next few months. Looking at last month’s breakdown we see evidence of this as electronic and apparel sales fell 5.9% and 1.8%. These are volatile sectors and sharp falls are typically followed by a rebound. Indeed, the last two times demand for electronic goods fell by more than 5% the following month saw at least a 7% rebound. Therefore, we could see an upside surprise which would validate the bullish Euro/dollar technical outlook which is calling for the pair to reach as high as 1.3800/4200.
[B]Technical Outlook
[/B]
A push above 1.3742 is still required to satisfy the minimum requirement for wave Y, at which time I will expect a top and reversal (objectives are at points from 1.3800 to 1.4200). Yesterday, I wrote that “being a complex correction, I am not positive as to the structure of the rally from 1.2886. However, one possible count is an a-b-c flat (3-triangle-5) with wave b as a triangle.” This count is on track but the EURUSD could dip below 1.3556 before continuing its advance. In such a scenario, the rally from 1.3251 would be wave i of c of Y. A small second wave would test Fibonacci support, which is from 1.3430-1.3540. It is also possible that the EURUSD advances above 1.3742 while remaining above 1.3556 in an extended 5th wave. There are myriad possibilities but the bottom line is that the rally will not be complete until price pushes above 1.3742 and only a drop below 1.3251 would suggest that a top is in place. On another note, the time to go short is drawing near.
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[I]To discuss this report contact John Rivera, Currency Analyst: [email protected][/I]
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