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US advance retail sales preview: What to expect of EUR/USD?

FX:EURUSD   Euro / U.S. Dollar
US advance retail sales figure for April is likely to show household spending rebounded in April following a drop in March. The headline figure is yet to see a positive print in 2016. Retail sales dropped 0.4% in January followed by stagnation in February and another 0.4% drop in March.

The headline figure is seen rising 0.5% in April as compared to 0.4% drop in March. More importantly, retail sales ex Auto and Gas are seen rising 0.3% as well.

March details were - demand for motor vehicle & parts slipped 2.1%, discretionary spending on clothing falling 0.9%, sales of building materials increased another 1.4%.

Under close scrutiny

Investors across the globe desperately need good news out of the US. Moreover, there is very little optimism across the globe except in Germany, whose current account surplus rose to a record high. It is a different story that German surplus is a major problem today –adding to aggregate demand deficiency in periphery Eurozone nations.

Note that today’s data comes on the back of a weaker NFP report released last week. Jobless claims released yesterday also neared 300K levels. Thus, retail sales at least need to match estimates or else risk sentiment could take a hit. We already have a head and shoulder formation in progress on Dow daily chart.

A weak rebound in retail sales could kill whatever little hope of June rate hike that exists in the market, but may not do much damage to the US dollar             , especially if equities turn risk-off. Remember, the treasury notes still offer a high yield as compared to its peers and are also a safe haven asset. Hence, greenback may not lose much ground against commodity currencies/risk currencies and EM currencies. However, Yen and other funding currencies are likely to gain ground against the greenback.

On the other hand, a sharper than expected rebound could help USD score broad based gains. Gold             could take a hit in this case along with Yen and EUR.

What to expect of EUR/USD?

  • Euro is heading into the release on a weak footing, given the rising trendline on the 4-hr was breached yesterday in NY session. The bird clocked a low of 1.1329 before recovering to 1.1351.
  • Strong data could see the pair test 1.1296 (Daily 50-SMA + rising trend line extended – Mar 2015 low-April 2015).
  • On the other hand, a weak data could help the pair test resistance at 1.14.
Day end closing below 1.1296 would add credence to bearish break from rising trend line on 4-hr and expose further downside. Meanwhile, day end closing above 1.14 would shift risk in favor of a re-test of 1.1465-1.15 levels next week.
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