Monday, 13 April 2009 11:22:38 GMT
Written by David Song, Currency Analyst
Full Article
Retail sales in the U.S. is expected to rise 0.3% in March as tax refunds begin to reach consumers however, the outlook for private-sector spending remains bleak as households face a weakening labor market paired with fears of a deepening recession. The world’s largest economy lost another 663K jobs in March, which pushed the annual rate of unemployment to its highest level since 1983.
Trading the News: U.S. Advance Retail Sales
What’s Expected
Time of release: 04/14/2009 12:30 GMT, 08:30 EST
Primary Pair Impact: EURUSD
Expected: 0.3%
Previous: -0.1%
Impact the U.S. retail sales report had over EURUSD for the past 2 months
February 2009 U.S. Retail Sales
Private-sector demands in the U.S. fell 0.1% in February after rising 1.8% in the previous month, and the outlook for consumer spending remains bleak as deteriorating fundamentals continue to foreshadow a deepening downturn in the region. A deeper look at the report showed that auto-related purchases fell 4.3% during the month, while gasoline receipts increased 3.4% on the back of higher oil prices, and conditions are likely to get worse as households face a weakening labor market. The economy lost another 651K jobs during the same period, which pushed the jobless rate to 8.1% - the highest since December 1983 – and the data continues to reinforce a dour outlook for the labor market as business continue to cut back on production and employment in an effort to reduce costs.
January 2009 U.S. Retail Sales
Retail sales in the U.S. unexpectedly increased 1.0% in January to snap a six-month slump in private-spending however, domestic demands are likely to weaken further in the months ahead as households continue to face a weakening labor market. The breakdown of the report showed that the rise in consumption was driven by a 2.6% rise in gasoline receipts, which was followed by a 2.6% increase in electronics, while discretionary spending on clothing increased 1.6% during the month. Private-sector spending is likely to weaken further throughout the first half of the year as economists forecast the unemployment rate to push higher, and as the world’s largest economy faces its worst economic downturn in over a quarter century, the outlook for future growth remains bleak.
What To Look For Before The Release
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:
Bullish Scenario:
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.
Bearish Scenario:
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.
How To Trade This Event Risk
Retail sales in the U.S. is expected to rise 0.3% in March as tax refunds begin to reach consumers however, the outlook for private-sector spending remains bleak as households face a weakening labor market paired with fears of a deepening recession. The world’s largest economy lost another 663K jobs in March, which pushed the annual rate of unemployment to its highest level since 1983, while continuing jobless claims surged to a record-high of 5.84M in the week ending March 28, and conditions are likely to get worse as firms continue to cut back on production and employment in an effort to reduce costs. Moreover, consumer credit plunged $7.48B in February to $2.56T, while same-store sales slipped 2.1% from a year earlier in March, and the data continues to reinforce a dour outlook for the region as personal consumption accounts for more than two-thirds of the economy. Meanwhile, a report by the Conference Board showed that consumer confidence held near the record-low in March, while their index for leading indicators dropped 0.4% in February, and the outlook for growth and inflation remains bleak as the Organization for Economic Cooperation and Development projects GDP to contract 4.0% this year. Furthermore, the group stated that the economic downturn in the region ‘has deepened sharply, with output contracting at an alarming pace and the labor market weakening rapidly,’ and the group went onto say that they expect the unemployment rate to peak at 10.5% by the end of 2009. The OECD’s forecasts are significantly weaker than what the Obama Administration has called for as the White House expects the jobless rate to average 7.9% and the growth rate to fall 1.2% this year, and as the outlook for growth and inflation falter, President Obama’s $787B stimulus package may fall short of expectations as the downturn in the global economy intensifies. As a result, the OECD claimed that additional stimulus measures could be required to soften the landing of the economy as households face fading demands for employment paired with tightening credit conditions, and underpins the comments from the Fed’s Minutes as policymakers see ‘downside risks as predominating in the near term, mainly owing to potential adverse feedback effects as reduce employment and production weighed on consumer spending.’ As a result, the central bank expects the annual rate of unemployment to increase ‘more steeply into early next year,’ which continues to foreshadow a dour outlook for personal spending, but went onto say that ‘a number of market forces and policies now in place were seen as eventually leading to economic recovery.’ The statement favors a bearish outlook for the greenback as the central bank anticipates household spending to weaken further, but nevertheless, as risk trends continue to drive price action in the foreign exchange market, a downward shift in market sentiment could boost demands for the U.S. dollar as the reserve currency continues to benefit from safe-haven flows.
Expectations for a 0.3% rise in retail sales clearly favors a bullish outlook for the greenback, and a rebound in discretionary spending would lead us to take a long dollar position for the given event risk. Therefore, if private spending increases 0.3% or more in March, we will look for a red, five-minute candle following the release to confirm a sell entry on two-lots of EURUSD. Once these conditions are met, we will set our initial stop at the nearby swing high (or reasonable distance taking volatility into account), and this risk will determine our first target. Our second target will be based purely on discretion, and in order to preserve our profits, we will move the stop on the second lot to breakeven once the first trade reaches its target.
On the other hand, tightening credit conditions paired with a weakening labor market are likely to weigh on households, and a drop in consumer spending would lead us to short the dollar as the economy faces its worst economic downturn in over half a century. As a result, an unexpected drop in retail sales would set the stage for us to sell the greenback, and we will follow the same strategy for a long euro-dollar trade as the short position listed above, just in reverse.
DailyFX provides forex news on the economic reports and political events that influence the currency market. Learn currency trading with a free practice account and charts from FXCM.
Written by David Song, Currency Analyst
Full Article
Retail sales in the U.S. is expected to rise 0.3% in March as tax refunds begin to reach consumers however, the outlook for private-sector spending remains bleak as households face a weakening labor market paired with fears of a deepening recession. The world’s largest economy lost another 663K jobs in March, which pushed the annual rate of unemployment to its highest level since 1983.
Trading the News: U.S. Advance Retail Sales
What’s Expected
Time of release: 04/14/2009 12:30 GMT, 08:30 EST
Primary Pair Impact: EURUSD
Expected: 0.3%
Previous: -0.1%
Impact the U.S. retail sales report had over EURUSD for the past 2 months
February 2009 U.S. Retail Sales
Private-sector demands in the U.S. fell 0.1% in February after rising 1.8% in the previous month, and the outlook for consumer spending remains bleak as deteriorating fundamentals continue to foreshadow a deepening downturn in the region. A deeper look at the report showed that auto-related purchases fell 4.3% during the month, while gasoline receipts increased 3.4% on the back of higher oil prices, and conditions are likely to get worse as households face a weakening labor market. The economy lost another 651K jobs during the same period, which pushed the jobless rate to 8.1% - the highest since December 1983 – and the data continues to reinforce a dour outlook for the labor market as business continue to cut back on production and employment in an effort to reduce costs.
January 2009 U.S. Retail Sales
Retail sales in the U.S. unexpectedly increased 1.0% in January to snap a six-month slump in private-spending however, domestic demands are likely to weaken further in the months ahead as households continue to face a weakening labor market. The breakdown of the report showed that the rise in consumption was driven by a 2.6% rise in gasoline receipts, which was followed by a 2.6% increase in electronics, while discretionary spending on clothing increased 1.6% during the month. Private-sector spending is likely to weaken further throughout the first half of the year as economists forecast the unemployment rate to push higher, and as the world’s largest economy faces its worst economic downturn in over a quarter century, the outlook for future growth remains bleak.
What To Look For Before The Release
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:
Bullish Scenario:
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.
Bearish Scenario:
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.
How To Trade This Event Risk
Retail sales in the U.S. is expected to rise 0.3% in March as tax refunds begin to reach consumers however, the outlook for private-sector spending remains bleak as households face a weakening labor market paired with fears of a deepening recession. The world’s largest economy lost another 663K jobs in March, which pushed the annual rate of unemployment to its highest level since 1983, while continuing jobless claims surged to a record-high of 5.84M in the week ending March 28, and conditions are likely to get worse as firms continue to cut back on production and employment in an effort to reduce costs. Moreover, consumer credit plunged $7.48B in February to $2.56T, while same-store sales slipped 2.1% from a year earlier in March, and the data continues to reinforce a dour outlook for the region as personal consumption accounts for more than two-thirds of the economy. Meanwhile, a report by the Conference Board showed that consumer confidence held near the record-low in March, while their index for leading indicators dropped 0.4% in February, and the outlook for growth and inflation remains bleak as the Organization for Economic Cooperation and Development projects GDP to contract 4.0% this year. Furthermore, the group stated that the economic downturn in the region ‘has deepened sharply, with output contracting at an alarming pace and the labor market weakening rapidly,’ and the group went onto say that they expect the unemployment rate to peak at 10.5% by the end of 2009. The OECD’s forecasts are significantly weaker than what the Obama Administration has called for as the White House expects the jobless rate to average 7.9% and the growth rate to fall 1.2% this year, and as the outlook for growth and inflation falter, President Obama’s $787B stimulus package may fall short of expectations as the downturn in the global economy intensifies. As a result, the OECD claimed that additional stimulus measures could be required to soften the landing of the economy as households face fading demands for employment paired with tightening credit conditions, and underpins the comments from the Fed’s Minutes as policymakers see ‘downside risks as predominating in the near term, mainly owing to potential adverse feedback effects as reduce employment and production weighed on consumer spending.’ As a result, the central bank expects the annual rate of unemployment to increase ‘more steeply into early next year,’ which continues to foreshadow a dour outlook for personal spending, but went onto say that ‘a number of market forces and policies now in place were seen as eventually leading to economic recovery.’ The statement favors a bearish outlook for the greenback as the central bank anticipates household spending to weaken further, but nevertheless, as risk trends continue to drive price action in the foreign exchange market, a downward shift in market sentiment could boost demands for the U.S. dollar as the reserve currency continues to benefit from safe-haven flows.
Expectations for a 0.3% rise in retail sales clearly favors a bullish outlook for the greenback, and a rebound in discretionary spending would lead us to take a long dollar position for the given event risk. Therefore, if private spending increases 0.3% or more in March, we will look for a red, five-minute candle following the release to confirm a sell entry on two-lots of EURUSD. Once these conditions are met, we will set our initial stop at the nearby swing high (or reasonable distance taking volatility into account), and this risk will determine our first target. Our second target will be based purely on discretion, and in order to preserve our profits, we will move the stop on the second lot to breakeven once the first trade reaches its target.
On the other hand, tightening credit conditions paired with a weakening labor market are likely to weigh on households, and a drop in consumer spending would lead us to short the dollar as the economy faces its worst economic downturn in over half a century. As a result, an unexpected drop in retail sales would set the stage for us to sell the greenback, and we will follow the same strategy for a long euro-dollar trade as the short position listed above, just in reverse.
DailyFX provides forex news on the economic reports and political events that influence the currency market. Learn currency trading with a free practice account and charts from FXCM.