EUR/USD Lower-Highs in Focus Ahead of U.S. Retail Sales Report

- U.S. Advance Retail Sales to Increase for Ninth-Time in 2014.

- Will Seasonal Factors Spur Better-Than-Expected Retail Sales Report?

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Trading the News: U.S. Advance Retail Sales

A pickup in Advance U.S. Retail Sales may generate short-term decline in EUR/USD as stronger consumption raises the growth and inflation outlook for the world’s largest economy.

What’s Expected:

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Why Is This Event Important:

Indeed, an expansion in household spending is likely to heighten the appeal of the greenback and boost interest rate expectations as a growing number of Fed officials show a greater willingness to normalize monetary policy in mid-2015.

Expectations: Bullish Argument/Scenario

Stronger wage growth paired with the ongoing improvement in the labor market may spur a further pickup in private sector consumption, and a positive sales report may spur a bullish dollar reaction amid growing bets for a Fed rate hike in the year ahead.

Risk: Bearish Argument/Scenario

However, sticky inflation along with the slowdown in private sector credit may drag on household spending, and a dismal development may foster a more meaningful rebound in EUR/USD as it raises the FOMC’s scope to zero-interest rate policy (ZIRP) for an extended period of time.

How To Trade This Event Risk(Video)

Bullish USD Trade: U.S. Retail Sales Climbs 0.4% or More

• Need red, five-minute candle following the release to consider a short trade on EUR/USD
• If market reaction favors a long dollar trade, sell EUR/USD with two separate position
• Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward
• Move stop to entry on remaining position once initial target is hit; set reasonable limit

Bearish USD Trade: Private-Sector Consumption Falls Short of Market Forecast

• Need green, five-minute candle to favor a long EUR/USD trade
• Implement same setup as the bullish dollar trade, just in the opposite direction

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Potential Price Targets For The Release

EUR/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

• Despite the string of lower-highs, a bullish break in the Relative Strength Index (RSI) may highlight a larger for EUR/USD.
• Interim Resistance: 1.2600 pivot to 1.2610 (61.8% expansion)
• Interim Support: 1.2280 (100% expansion) to 1.2290 (38.2% expansion)

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Impact that the U.S. Retail Sales report has had on EUR/USD during the previous month

October 2014 U.S. Advance Retail Sales

U.S. Retail Sales increased 0.3% from the month prior, with 10 of the 13 components showing an expansion in October. Despite stagnant wage growth, the resilience in private sector consumption may put increased pressure on the Fed to normalize monetary policy as it remains one of the leading drivers of growth. The initial reaction to the better-than-expected print was short-lived as EUR/USD climbed above the 1.2500 region during the North American trade to end the day at 1.2521.

--- Written by David Song, Currency Analyst and Shuyang Ren

To contact David, e-mail [email protected]. Follow me on Twitter at @DavidJSong.

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