US Retail Sales impact on next Fed's decision and EUR/USD

  • Retail Sales Control Group forecasted to be up 0.4% in February.
  • Sales will be another piece of the puzzle that will lay the groundwork for Fed's meeting.

Following the release of solid but  unimpressive inflation data, the next US relevant event of the week are Retail Sales figures, to be out this Wednesday.

February Retail Sales are expected to be up monthly basis by 0.3%, after an unexpected decline in January of 0.3%, the biggest monthly drop in almost a year.  The decline was attributed to households cutting back on purchases of motor vehicles and building materials. Furthermore, December data was revised down, from an initial estimate of a 0.4% gain to unchanged. Slow consumer spending usually anticipates slower inflation, but at this point that seems less relevant, given that inflation for February  has been already released.  Core inflation remained unchanged at 1.8% YoY, steadily up and in its way to achieving Fed's target of 2.%.

Retail Sales will be another piece of the puzzle that will lay the groundwork for Fed's meeting later this month, with the focus not on the headlines, but on the Retail Sales Control Group number, expected to be up 0.4% from previous 0.0%.

The Retail Sales Control Group number is the most relevant, because it excludes gasoline and construction materials, and is used to construct  Personal Consumption Expenditure,  which is the Fed's favorite gauge of inflation. A reading above expected, and better above 0.8%, where it peaked in 2016 and 2017 should be a nice trigger for a bullish run in the greenback,  while another flat reading, or even worse, a negative one, could put the greenback in sell-off mode. Still, sentiment is a key market driver these days and would be advisable to follow equities and yields reactions first, to anticipate  greenback's direction through  the FX board.

Trading the event with the Market Impact tool

Follow the publication of the figure on the economic calendar. Watch out for the data from the Market Impact tool, projecting the potential price changes according to the deviation. Here is the Market Impact Studies Users Guide.

Retail Sales Control Group

Primary currency pair: EUR/USD

Tradable Positive Trigger: + 0.7 deviation [SELL Pair]

Tradable Negative Trigger: -0.6 deviation [BUY Pair]

Key Resistance Level:  1.2400 figure, en route to 1.2445 the high set last week.

Key Support Level: 1.2300 figure, en route to 1.2265, 61.8% retracement of the latest weekly run.

In the last five releases, the EUR/USD moved, on average, 38 pips in the first 15 minutes after the release and 69 pips in the 4 hours after the release.

The previous release had surprised with a -1.25 measure in terms of deviation, and the EUR/USD reached 117 pips of volatility in the 15 minutes after the release and 143 in the following four hours.

If it comes out at higher than expected with a deviation of +0.7 or higher, the pair may go down reaching a range of 65 pips in the first 15 minutes and 90 pips in the following 4 hours. If it comes out lower than expected at a deviation of -0.6 or less, the EUR/USD may go up reaching a range of 66 pips in the first 15 minutes and 75 pips in the following 4 hours.

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