Dollar's short-term outlook hinges on the US Retail Sales report today

During this week our main focus has been on the US Dollar and its apparent weakness against the other majors, mainly the Euro and the Pound that have seen strong gains over recent sessions. Our attention has been on the US currency as market participants had been expecting it to be far stronger ahead of the upcoming Fed meeting last week and the way the Dollar is trading has left them wondering what that might mean.

Yesterday the US currency clawed back some of its lost ground against its European peers but again the rally that has seen the buck losing significant strength might not be easily reversible. The only way the Dollar could again pick up momentum would have been Janet Yellen making strong and clear remarks in favor of the upcoming tightening agenda but we makes no more public appearances this week.

Instead, the release of the US Retail Sales report today is the only piece of important news and possibly the highlight of a week filled with second-tier reports and less significant news and developments. Analysts’ expectation make word for a strong consumer report based on the precursors of demand, spending and wage growth and such a development could help the Dollar recover partially at the end of the week.

Being more specific and talking about the recent price action, the Euro is trading around the 1.0950 area this morning having come off its 1.1000 highs. The Single currency has seen important gains over the past week or so benefiting from the Dollar’s weakness but this kind of rally doesn’t help too much ECB’s easing agenda. The only one that can talk down the currency is Mario Draghi but like Yellen he has no public appearances this week. A strong US Retail Sales report could put the Euro under pressure with our goals being focused around the 1.0800 support area.

Similar to the Euro, the Cable traded lower yesterday after nearly touching the 1.5200 resistance after the more bearish than expected BoE meeting on rate policy. The central bankers left interest rates unchanged of course but expressed their concerns about the rate of wage growth and inflationary pressures especially with oil at such lows. As such we expect the Cable to turn bearish and a robust Retail Sales report from the US today could send the UK currency below the 1.5100 support towards the 1.5000 lows of the week.