Trading the News: US Advanced Retail Sales
What is Expected
Time of release: 10/12/2007 12:30 GMT, 08:30 EST
Primary Pair Impact : EURUSD
How To Trade This Event Risk[/B]
Over the past three months, the US Advanced Retail Sales report has lacked in its fundamental influence over the dollar. However, as an indicator, the leading gauge for objective consumer spending still ranks among the most important reports in the US cache. In fact, considering the downward revisions in forecasts for economic expansion over the final half of the year and the Fed’s recent move to loosen its stance on monetary policy, the health of the consumer sector has grown in significance. If consumer spending falters, then the cooling employment trends may draw the whole sector down and damage a vital component of growth. Alternatively, steady spending from the largest sector could help the economy avoid a much-feared recession and balance economics long enough for the Fed to turn its attention back to inflation concerns. Of course, as a event-driven trade, the fundamental specifics will take a back seat to the immediate surprise from the data. The consensus for September retail sales is tepid, allowing for a considerable divergence to the upside or downside. However, as we have seen over the past three releases, the headline number alone may not be enough to move the market. The ‘core’ figures and component activity could also be taken into account should the leading figure not genuinely surprise.
After the Fed’s decision to cut the overnight lending rate by 50 basis points last month, the bearish cloud over the dollar has grown darker. Now, with the greenback pushing 15 year lows and the central bank expected to continue in its efforts to lower the benchmark rate, the future of the economy and the currency may rest in the consumers hands. We would optimally like to see a considerable upside surprise (0.5 percentage points or more) as a fundamental trigger for a short EURUSD trade. With a strong fundamental reading and red, five minute candle for technical confirmation, we will look to take a short position on two lots at market with an immediate stop at the swing high (or reasonable distance) with a first target equal to this distance. When the first lot takes profit, the stop on the second should be moved to break even and a discretionary target for this half may be clearer with momentum and volatility taken into consideration.
For an bearish outcome on the economic release, we would need a disappointment of equal magnitude to our bullish scenario. A mere drop in sales may not be enough to rally EURUSD considering its proximity to its all-time highs. Should the fundamentals be incontrovertible and a green, five minute candle be put into place, we will use the same entry and management rules for a long trade.
Written By: John Kicklighter, Currency Analyst for DailyFX.com