EUR/USD to Stage Larger Pullback on Upbeat U.S. Retail Sales Report

Another 0.4% rise in U.S. Advance Retail Sales may boost the appeal of the greenback and spark a near-term decline in EUR/USD as it puts pressure on the Federal Open Market Committee (FOMC) to further normalize monetary policy in 2016.

What’s Expected:

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Why Is This Event Important:

Despite limited expectations for September Fed rate-hike, a pickup in private-sector consumption, one of the leading drivers of growth and inflation, may spur a greater dissent at the next quarterly meeting as central bank officials see a risk of overshooting the 2% target for price growth. However, the majority may attempt to buy more time especially ahead of the U.S. Presidential election in November as Chair Janet Yellen appears to be in no rush to implement higher borrowing-costs.

Expectations: Bullish Argument/Scenario

Improved confidence accompanied by the pickup in job growth may boost household spending, and a marked increase in U.S. Retail Sales may spur a bullish reaction in the greenback as it fuels interest-rate expectations.

Risk: Bearish Argument/Scenario

However, subdued wage growth paired with the slowdown in private-sector lending may drag on consumption, and a dismal development may produce near-term headwinds for the dollar as market participants push out bets for the next Fed rate-hike.

How To Trade This Event Risk (Video)

Bullish USD Trade: U.S. Retail Sales Rises 0.4% or Greater

• Need red, five-minute candle following the NFP 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: Private-Sector Consumption Fails to Meet Market Expectations

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

Potential Price Targets For The Release

EUR/USD Daily

Chart - Created Using FXCM Marketscope 2.0

• EUR/USD may continue to consolidate over the coming days as it appears to be stuck in a wedge/triangle formation, but the pair stands at risk of extending the advance carried over from back in December especially as the Relative Strength Index (RSI) breaks out of the bearish trend from earlier this year.
• Key Resistance: 1.1760 (61.8% retracement) to 1.1810 (38.2% retracement)
• Key Support: Interim Support: 1.0380 (78.6% expansion) to 1.0410 (61.8% expansion)

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

June 2016 U.S. Advance Retail Sales

EUR/USD 5-Minute

U.S. Retail Sales increased another 0.6% in June after expanding a revised 0.2% the month prior, led by a 3.9% pickup in demand for building materials. Moreover, department store sales bounced back 0.7% during the same period, with gasoline receipts climbing 1.2%, while discretionary spending on clothing slumped 1.0% following the 0.8% expansion in May. The better-than-expected report propped up the greenback, with EUR/USD slipping below the 1.1100 handle to end the day at 1.1028.