Why US Consumer is Key to USD Trade

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Market Drivers Nov 13, 2015

EZ GDP slight miss
UK Construction Output -0.2% vs. -0.3%
Nikkei -0.51% Eurostoxx -0.25%
Oil $42/bbl
Gold $1083/oz

Europe and Asia:
EUR EU Flash GDP 0.3% vs. 0.4%
GBP UK Construction Output -0.2% vs. -0.3%

North America:
USD Retail Sales 8:30

USD U of M 9:55

A very quiet session of trade on the last day of the week as markets remained essentially motionless ahead of key US consumer data later in North American session.

After a vicious little shore squeeze on the close of yesterday’s US trading the EUR/USD spent most of the Asian and early European trade giving up its gains at it drifted back to 1.0750 from 1.0830 highs. The pair has found support under the 1.0700 level and continues to consolidate in 1.0700-1.0800 range for now.

The calendar was very quiet with only the EZ flash GDP readings on the docket. The data came in a little softer than expected at 0.3% versus 0.4% but the year on year numbers inched just a bit higher to 1.6% from 1.5% the month prior.

There was little detail in the flash report, but the headline numbers suggest that the region remains mired in very slow and steady growth pattern still below the key 2% rate with ECB monetary stimulus not showing much impact just yet.

On the positive side EZ growth appears to have gained momentum in the past year rising at average rate of 0.3% per quarter and looks like lower exchange rates and accommodative monetary policies will provide a supportive environment into 2016.

The focus for the currency market however will be today’s US consumer data. The US consumer comprises more than 75% of the US GDP and today’s US Retail Sales as well as U o M consumer survey will provide some very important insight into the strength of the US economy. The market is anticipating a big jump with Core Retail Sales rising to 0.4% from -0.3% the month prior. If the news proves positive it could lift USD/JPY through the key 124.00 resistance level as expectations for a rate hike will rise. If on the other hand the number misses once again, USD/JPY could quickly retreat to the lower end of the recent range at 121.00 as doubts begin to creep in.

At this point US data is driving flow in the currency market and despite the fact the Ms. Yellen demurred from discussing any policy changes yesterday, the pressure on the Fed to hike rates in December will increased markedly if today’s consumer spending data shows some strength. One of the key concerns about recent credit expansion is the uptick in the volume of car loans, student loans and unsecured credit card debt and while a 25bp rate hike isn’t likely to have a significant impact on lending it may send a signal to temper some of the recent pace of growth. The US Retail report therefore takes on a much greater significance today and may be the big mover at the close of trading week.

Boris Schlossberg
Managing Director

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