If you're thinking of trading the news, the U.S. retail sales release could give you a nice opportunity to catch some pips this week. Our trusty economic calendar reveals that this report is due Oct 15 at 12:30 pm GMT, so let's figure out what this report is all about.
The retail sales report serves as an excellent gauge of consumer spending, which accounts for roughly 70% of overall economic growth. That's why a lot of traders are keeping close tabs on this report, and why you should watch out for it, too!
Recent jobs reports could shed light on the possible slowdown in consumer spending as the U.S. unemployment rate dropped below 8% while average hourly wages grew. Could this mean that Americans would be back to their shopping sprees?
If we've learned anything from the past releases of U.S. retail sales data, it's that the report tends to have a major impact on the markets. On most occasions, we saw EUR/USD display extended moves that were easily 100 pips long and lasted well into the end of the New York session.
Also of note is how the markets treated the actual results. Rather than buying the dollar at the sight of better-than-expected U.S. retail sales data, the markets sold it off, sending EUR/USD higher up the charts. Meanwhile, the dollar strengthened and EUR/USD fell sharply when worse-than-expected results were published.
What this suggests is that the report has the potential to direct risk sentiment, as highly positive results tend to result in risk taking while disappointing results bring on safe haven flows that benefit the dollar.
The best way to take advantage of the news could be to go with a non-directional bias and simply go with a straddle play. By this, I mean you can place buy / sell orders above / below the current price and take advantage of any strong reaction to the release of the report.
If you're a conservative trader, you can consider aiming for the next major inflection point and going for just 30 to 50 pips for a target. Since it's a news trade, go with a stop of about 20 to 30 pips and hold the trade for not more than an hour.
On the other hand, if you believe that we'll see an extended move like we've seen in the past two releases, then you can consider holding until the end of the New York session when volatility tends to die down.