United States FX Today: US Dollar holds steady ahead of Retail Sales data

The US Dollar (USD) continues to lose ground on Monday, with the US Dollar Index (DXY) shedding 0.2% on the day, as markets await the closely watched August Retail Sales figures, due on Tuesday at 12:30 GMT.

The consensus is for a moderate 0.3% rise in Retail Sales, compared with 0.5% in July, but some analysts, such as Terra Bull Market, are anticipating a firmer reading of around 0.4% thanks to a price effect on fuels and the continued strength of online retailing.

This report, which comes on the eve of the next Federal Reserve (Fed) meeting, could weigh heavily on market sentiment. A better-than-expected figure would revive the scenario of a stronger-than-expected US economy.

Conversely, a disappointing figure would confirm signals of a slowdown in consumption and could weaken the Greenback in the short term. The USD on the Forex market on Monday,  therefore, remains suspended on this key publication, against a backdrop of great uncertainty on the monetary policy for the end of the year.

Consumption under pressure

At the heart of the US Dollar's evolution, the dynamics of American consumption are an essential indicator of economic resilience. In July, Retail Sales rose by a solid 0.5%, buoyed by a 1.6% increase in automobile sales, a 0.8% rise in e-commerce, and even a 0.7% increase in gas station sales, while the restaurant sector dipped slightly. It is precisely this composition that makes August's reading more uncertain.

On the one hand, gasoline prices continued to climb in August. According to data from the US Energy Information Administration (EIA), average prices rose from $3.25 to $3.32 per gallon, which should mechanically boost sales in this sector.

The August Consumer Price Index (CPI) rose by 1.9% for energy and 0.6% for food at home, all of which point to an upward reading of the overall figure.

The other pillar is e-commerce, which continues to demonstrate its solidity, buoyed by the back-to-school period and anticipated purchases in the face of price uncertainties.

The Retail Monitor platform (NRF/Affinity) reports a monthly growth of 0.5% excluding autos and fuels, and even 0.26% for their control group (excluding autos, gas and restaurants).

Bank of America reports a 0.4% rise in card spending in August, consistent with positive but cautious consumer spending.

DXY technical analysis: The Greenback keeps moving backward

US Dollar Index 4-hour chart. Source: FXStreet

The US Dollar Index retreats on Monday, as the downtrend that has lasted since August remains in effect, with the Greenback in a bearish channel on the 4-hour chart.

A breakout from this channel, currently between 97.25 and 98.55, remains necessary before we can consider a more significant impetus — on the downside as well as the upside.

While the current trend is largely dictated by expectations of a Federal Reserve rate cut in September, Tuesday’s Retail Sales data could provide additional information on the extent of the rate cut to come, and above all, on the trajectory the Fed could follow for the rest of the year. This, of course, should have ample influence on the US Dollar price.