Dollar Rally Needs a Good US Retail Sales Number

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Market Drivers August 12, 2016

Chinese data misses
EZ GDP in line
Nikkei 0.72% Dax -0.34%
Oil $43/bbl
Gold $1342/oz.

Europe and Asia:
CNY IP 6% vs 6.2%
CNY Retail Sales 10.2% vs. 10.4%
EUR EZ GDP 0.3% vs. 0.3%

North America:
USD Retail Sales 8:30
USD PPI 8:30
USD U of M 10:00

It’s been a very subdued session of trade in the currency market with most of the majors carving out very narrow 25-50 pip ranges in very quiet end of week trade.

The only releases of importance came out of China where most of the data deluge missed its mark. Chinese Industrial Production came in at 6.0% vs. 6.2% eyed while Retail Sales printed at 10.2% versus 10.4% forecast. Fixed Asset investments were weaker as well at 8.1% versus 8.9% projected.

Chinese authorities blamed flooding and hot summer for the slowdown and today’s data set will no doubt revive speculation about more stimulus, but with news generally in-line, the FX market mostly ignored the reports, although Aussie did give up 20 pips quickly ahead of the release in what appeared to be a mild case of front running.

Overall the dollar rally which started yesterday in North American trade continued to gather steam with USD/JPY popping as high as 102.20 before succumbing to some profit taking. North America will be the focus of all the action again today as traders await the key US Retail Sales release. The market anticipates a slight drop to 0.4% from 0.6% the month prior but any upside surprise should help the buck extend its gains into the weekend.

Although market sentiment still remains sceptical with respect to any rate hikes by the Fed this year the slow and steady improvement in US performance is going to add to the argument for tightening sooner rather than later. Right now the primary reason for caution is the general malaise in global growth, but if the US consumer begins to finally spend buoyed by better employment prospects and rising wages US economy could once again act as the engine for global growth and give US policymakers more confidence to normalize rates.

Boris Schlossberg
Managing Director

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