EUR/USD Risks Further Decline on Upbeat U.S. Retail Sales Report

- U.S. Advance Retail Sales to Increase for the Sixth Time in 2014.

- Rise of 0.6% Would Match Fastest Rate of Growth Since April.

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Trading the News: U.S. Advance Retail Sales

The EUR/USD may face a further decline over the next 24-hours of trade should the U.S. Retail Sales report prop up interest rate expectations for the reserve currency.

What’s Expected:

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Why Is This Event Important:

A marked picked up in private sector consumption may encourage the Federal Open Market Committee (FOMC) normalize monetary policy sooner rather than later, and we may see a growing number of central bank officials adopt a more hawkish tone for monetary policy as the board looks to conclude its asset-purchase program at the October 29 meeting.

Expectations: Bullish Argument/Scenario

The expansion in private sector credit along with the uptick in wage growth may prompt a strong consumption reading for August, and a better-than-expected print may put increased downside pressure on the EUR/USD as it raises the outlook for growth and inflation.

Risk: Bearish Argument/Scenario

However, sticky inflation paired with the slowdown in job growth may drag on household spending, and a dismal Retail Sales figure may prompt a larger correction in the dollar as it limits the Fed’s scope to move away from the zero-interest rate policy (ZIRP) ahead of schedule.

How To Trade This Event Risk(Video)

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Bullish USD Trade: U.S. Retail Sales Climb 0.6% or Greater

• Need red, five-minute candle following the release to consider a short trade on EUR/USD
• If market reaction favors a long dollar trade, sell EUR/USD with two separate position
• Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward
• Move stop to entry on remaining position once initial target is hit; set reasonable limit

Bearish USD Trade: Household Consumption Disappoints

• Need green, five-minute candle to favor a long EUR/USD trade
• Implement same setup as the bullish dollar trade, just in the opposite direction

Potential Price Targets For The Release

EUR/USD Daily

Chart - Created Using FXCM Marketscope 2.0

• Will continue to favor downside targets as RSI holds in oversold territory & retains bearish momentum.
• Interim Resistance: 1.3220 (50.0% retracement) to 1.3230 (61.8% retracement)
• Interim Support: 1.2800 pivot to 1.2810 (61.8% expansion)

Read More:

Price & Time: The AUD/USD Cold Shoulder

AUDUSD Scalps Target Head and Shoulders Break- Bearish Sub 9236

Impact that the U.S. Retail Sales report has had on EUR/USD during the previous month

July 2014 U.S. Advance Retail Sales

U.S. retail sales came in flat from June amid estimates of a 0.2% increase, largely drive by declines in Motor Vehicles, General Merchandise and Department Stores sales. The slowdown in consumption may indicate that the U.S. economy is expanding at a slow pace early on in the third quarter of 2014. The greenback weakened immediate following the dismal print, with the pair EUR/USD climbing above 1.3400, but the market reaction was short-lived as the pair ended the day at 1.3360, only 3 pips above the level prior to the release.

--- Written by David Song, Currency Analyst and Shuyang Ren

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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