Will US Retail Sales Keep The Dollar Rally Going?

Market Drivers April 14, 2015

Lackluster night as euro consolidates
UK core CPI 1.0% vs. 1.2%
Nikkei .02% Europe -0.43%
Oil $52/bbl
Gold $1192/oz.

Europe and Asia:
NZD Business Confidence 23 vs. 23
AUD NAB Business Confidence 3 vs. 0
GBP UK CPI 1.0% vs. 1.2%

North America:
USD PPI 8:30 AM
USD Retail Sales 8:30 AM

After yesterday heavy volatility, today's FX price action was relatively sedate with EUR/USD finding support around the 1.0550 level despite the fact that IMF warned that Greek negotiations were not working.

Yesterday Greece denied rumors that it was about to default on it obligations, but the pressure continues as the country is clearly running out of time and money. At this point it is not at all clear if Greece will be able to remain within the EZ monetary union for much longer given the country's lack of cashflow and EU refusal to consider any debt forgiveness.

The markets appear relatively sanguine about any prospect of a Grexit as most traders believe that much of the financial risk has been factored in. Still its not at all obvious as to what political risks a Grexit would cause. Greece has made fresh overtures to Russia as a result of the tough negotiations with Europe and should it move towards that sphere of influence, the destabilization in the region could be far greater than the mere default of one of the smallest members of the union.

Although the market remains seemingly placid the slow but steady decline in EUR/CHF which has moved below 1.0300 in early London trade today is an indication of concern over the latest turn of events.

In economic news the UK CPI data came in slightly cooler than expected at 1.0% vs. 1.2% eyed and cable initially dipped to test support at 1.4600 but managed to hold that level and recover towards 1.4650 in mid morning London dealing.The pair remains under pressure over the uncertainty of the UK election and if the polls continue to show a close race it may drift towards the key support at 1.4500 figure.

In North America, all focus will turn to the US Retail Sales data due at 12:30 GMT. The market is expecting a strong rebound from the month prior and a reading of 0.7% or better would go a long way to confirm the dollar bullish thesis by demonstrating that US consumer demand is growing which will allow the Fed to normalize policy sooner rather than later. A miss however, could really rattle the market and turn sentiment sharply around sending USD/JPY towards 119.00 as panicked long begin to bail out of the position.