US Retail Sales – Put up or Shut Up for Dollar Bulls?

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Market Drivers July 14, 2017
FX holds steady
Markets look to Retail Sales CPI
Nikkei 0.09% Dax 0.01%
Oil $46/bbl
Gold $1228/oz.

Europe and Asia:
No data

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

FX was a standstill on the last trading day of the week with most majors essentially unchanged from yesterday’s levels amidst very little fresh information and no major economic releases.

For now, the markets appear to have settled into an easy equilibrium, with most of the major holding key support and resistance levels as the dog days of summer only add to the price action torpor.

However, the calm could quickly shatter later in the day as traders digest the latest US economic reports which may indeed be the most important data points of the week. At 12:30 GMT US reports both the CPI readings and Retail Sales results. Core CPI readings are expected to uptick to 0.2% from 0.1% the month prior with year over year figures remaining at 1.7% – still below the Fed’s 2% target.

The focus of the market, however, will rest with the Retail Sales data which is expected to rebound to 0.2% from -0.3% the month prior. Retail Sales have been the greatest disappointment for US policy makers as they have missed estimates four months in a row. Despite the fact that labor market demand remains at near historic levels of tightness, wage growth has been subpar and consumer spending even more muted, as US consumers continue to service debt rather than increase spending. Given the fact that US economy is more than 70% dependent on consumption, the recent trend in lackluster Retail Sales is a clear concern for the markets and one of the key reasons why fixed income traders have been so skeptical of Fed’s bullishness.

Today’s Retail numbers are therefore truly a put up or shut up moment for the dollar. If the release misses the estimates, or worse prints negative once again, USDJPY could take a dive towards the 112.00 figure. This whole week USDJPY has been consolidating in the 113.00-114.00 region and technically is on the verge of forming a double top at the 114.50 level. If Retail Sales don’t prove supportive, today may well signal a near-term top in the pair.

Boris Schlossberg
Managing Director

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