US April Retail Sales Preview: Inflation dynamics to drive USD valuation

Retail Sales in US is expected to continue to increase in April.
USD outperforms its rivals following CPI inflation data.
10-year US Treasury bond yield remains on track to post strong weekly gains.

Eren Sengezer FXStreet

Following March’s impressive 9.7% increase, Retail Sales in the US is expected to expand by only 1% in April. The sharp upsurge witnessed in March was seen as a correction of February’s big decline that was caused by the severe weather conditions and failed to trigger a noticeable market reaction.

Investors will also be keeping a close eye on the Retail Sales Control Group, which is used to prepare the estimates of Personal Consumption Expenditures for most goods, especially after the latest inflation report from the US. Market consensus points to a 0.8% increase, compared to 6.9% in March.

US Retail Sales

The US Bureau of Labor Statistics reported on Wednesday that the Consumer Price Index (CPI) jumped to 4.2% in April from 2.6% in March. This reading surpassed the market expectation of 3.6% by a wide margin and triggered a rally in the US Treasury bond yields. Additionally, the Core CPI, which excludes volatile food and energy prices, advanced to 3% from 1.6%. The benchmark 10-year US T-bond yield rose more than 4% on a daily basis and provided a boost to the greenback. After fluctuating in a relatively tight range above 90.00 on Monday and Tuesday, the US Dollar Index gained nearly 0.8% on Wednesday.

US Annual CPI

Stronger-than-expected sales figures are likely to help the USD continue to outperform its major rivals. On the other hand, a disappointing print could limit the greenback’s upside. Nevertheless, inflation dynamics remain the primary driver of the USD’s market valuation and it wouldn’t be surprising to see the initial reaction to the Retail Sales report fade quickly.

Major pairs to watch for

Following Wednesday’s steep decline, the EUR/USD pair is staying in a consolidation phase above mid-1.2000s. On the downside, the 100-day SMA seems to have formed key support at 1.2040. A break below that level could trigger a technical selloff and drag the pair toward 1.2000 (psychological level, Fibonacci 38.2% retracement of the latest uptrend) ahead of $1.1960 (200-day SMA). On the other hand, the pair could regain its traction if US T-bond yields turn south ahead of the weekend and advance toward 1.2100 (psychological level). Above that hurdle, resistances are located at 1.2130 (static level) and 1.2180 (May 11 high).

The USD/JPY pair registered its biggest one-day percentage gain on Wednesday as it rose 1% on the back of surging US T-bond yields. The next target for USD/JPY lines up at 110.00 (psychological level). With a daily close above that key resistance, the pair could aim for 111.00 (psychological level, March 31 high). On the downside, the first support could be seen at 109.00 (psychological level, 50-day SMA, Fibonacci 23.6% retracement of February-April uptrend) ahead of 108.70 (20-day SMA) and 108.50 (static level).

Author

Eren Sengezer

FXStreet

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

GBP/USD declines to near 1.3500 as US-Iran tensions rise

The GBP/USD pair declines to near 1.3500 during the early European trading hours on Wednesday. Ongoing tensions in the Middle East provide some support to a safe-haven currency such as the US Dollar against the British Pound. All eyes will be on the US August jobs report later on Friday.

EUR/USD falls to two-week low below 1.1600 on broad USD strength

EUR/USD remains under bearish pressure after closing in negative territory on Tuesday and trades at its lowest level in two weeks below 1.1600 on Wednesday. As tensions in the Middle East escalate further, the US Dollar gathers strength on risk-aversion and hawkish Fed repricing, forcing the pair to stay on the back foot. Later in the day, private sector employment data from the US will be watched closely by market participants.

Gold recovers above $4,300; upside seems capped as Fed bets support USD

Gold recovers early lost ground to a four-week low, and trades above $4,320 heading into the European session. A modest US Dollar pullback is seen as a key factor supporting the commodity, though any meaningful upside seems elusive amid hawkish US Federal Reserve expectations. The escalating Middle East conflict lifted crude oil prices to a fresh high since July 24, stoking inflation fears and reaffirming bets for a Fed rate hike in September.

WTI advances to mid-$90.00s, fresh high since July 24 amid escalating US-Iran tensions

West Texas Intermediate (WTI) – the benchmark US Crude Oil price – scales higher for the third straight day – also marking the fifth day of a positive move in the previous six – and climbs to a fresh high since July 24 during the Asian session on Wednesday.

BoC set to keep interest rates steady despite sticky inflation

The Bank of Canada is widely expected to keep its policy rate unchanged at 2.25% on Wednesday. This would be the seventh consecutive gathering with the central bank sitting on the fence. The BoC left its policy rate unchanged at 2.25% in July, as widely anticipated.

Diesel’s record $100 warning: The oil shock hiding in plain sight

The Oil market may look calmer than it did a few months ago, but diesel is sending a very different message. The US diesel crack spread, the premium of ultra-low sulphur diesel futures over WTI, recently surged above $100 per barrel for the first time, reaching an intraday record of just over $102.00.