The US advance retail sales report is due for release in a few minutes. The headline figure for September is seen rising 0.2%, ex‐Auto and Gas is seen rising 0.3%.

Fed needs a strong figure to initiate liftoff

The aggregate demand deficiency in the global economy is a well know fact by now. The sharp drop in the Chinese imports further underscored this fact earlier this week. The weak data triggered a minor bout of risk aversion.

Heading into the payrolls report –

1. The USD/JPY pair has witnessed a bearish break from the symmetrical triangle formation, but still trades above the support of a larger triangle formation.

2. GBP/USD is heading into the report as the strongest major currency.

3. USD was smoked in the European session today.

4. Gold took out offers at USD 1169‐1170, before easing back slightly to USD 1166/Oz from the high of USD 1176/Oz.

Fed rate hike bets ahead of the retail sales report

CME Data Fed meetingRate hike bets (25 bps)
Oct 28, 20156.90%
Dec 16, 201533.60%
Jan 27, 201638.00%
Mar 16, 201642.00%

The corporate spending (durable goods report) and the household spending (advance retail sales report) has stayed anaemic in the US, despite the record rally in the stock markets, sustained labor market gains and low policy. Moreover, the numbers have not ticked higher even in anticipation of a rate hike.

Off late even the sentiment has worsened. A 25bps rate hike is now seen happening only in March 2016. Consequently, the number has gained an added importance today.

A weaker‐than‐expected/negative print could spell trouble for the risk assets. On the other hand, a better‐than‐expected figure would inject a fresh lease of life into the risk assets.

USD/JPY – Daily Chart


1. The daily chart shows, the pair has breached a smaller symmetrical triangle formation, but is yet to breach the larger one (represented by the red line). The support of the larger triangle is seen at 119.43 levels.

2. A weak advance retail sales report could trigger a bearish daily close below 119.43 and open doors for a sell‐off to 118.35 (127.2% Fib E of 125.28‐119.837‐125.28).

3. On the other side, fresh bids could come‐in if the pair reverses course to trade above 119.72 after the advance retail sales report. In such a case, the pair could re‐test the upper end of the triangle formation currently seen at 120.18 (green line).

A weak US advance retail sales report could erase whatever little probability of the 25 basis point rate hike exists for March 2016.

However, it would be good news for GBP/USD, which could extend gains to 1.5409 (38.2% of Apr‐Jun rally). Gold too could head towards USD 1200/Oz levels.

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