EUR/USD Descending Channel to Persist on Upbeat U.S. Retail Sales

- U.S. Advance Retail Sales to Increase for Second-Time in 2016.

- Core Sales to Rise for Third Consecutive Month in April.

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Trading the News: U.S. Advance Retail Sales

A 0.8% rebound in U.S. Advance Retail Sales may boost the appeal of the greenback and spur a near-term decline in EUR/USD as it puts increased pressure on the Federal Open Market Committee (FOMC) to implement higher borrowing-costs.

What’s Expected:

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Why Is This Event Important:

A meaningful pickup in private-sector spending may encourage the Fed to normalize monetary policy sooner rather than later as it remains one of the leading drivers of growth and inflation.

Expectations: Bullish Argument/Scenario

Stronger wage growth accompanied by the expansion in private-sector lending may spur a better-than-expected sales report, and a positive development may trigger a bullish reaction in the U.S. dollar as it boosts interest-rate expectations.

Risk: Bearish Argument/Scenario

However, the slowdown in job growth paired with signs of a slowing recovery may drag on household spending, and another unexpected decline in retail sales may drag on the greenback as market participants push out bets for a Fed rate-hike.

How To Trade This Event Risk(Video)

Bullish USD Trade: Retail Sales Rebounds 0.8% or Greater

• Need red, five-minute candle following the print to consider a short trade on EUR/USD.
• If market reaction favors a bullish 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 Spending Continues to Disappoint

• 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

EURUSD Daily

Chart - Created Using FXCM Marketscope 2.0

• A positive development may spur a near-term decline in EUR/USD as it remains stuck within a short-term downward trending channel, but the formation may ultimately turn out to be a continuation pattern (bull-flag) as the pair appears to be a in a long-term bottoming process.
• Interim Resistance: 1.1760 (61.8% retracement) to 1.1810 (38.2% retracement)
• Interim Support: Interim Support: 1.0380 (78.6% expansion) to 1.0410 (61.8% expansion)

Check out the short-term technical levels that matter for EUR/USD heading into the report!

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

March 2016 U.S. Advance Retail Sales

U.S. Retail Sales missed market expectations in March, with household spending unexpectedly contracting 0.3% after increasing a revised 0.2% the month prior. A deeper look at the report showed demand for motor vehicle & parts slipped 2.1% to lead the decline, with discretionary spending on clothing falling 0.9%, while sales of building materials increased another 1.4% in March. The greenback lost ground following the weaker-than-expected report, with EUR/USD coming off of the 1.1250 region to end the day at 1.1271.

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--- Written by David Song, Currency Analyst

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

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