Traders Poised for US Producer Prices, Consumer Sentiment

After clearing the hurdle of retails sales, the U.S. economy now faces a higher obstacle with the release of the producer-price index (PPI).

Prices of American goods have been flat for most of 2014, and they decreased with the impact of lower energy prices. PPI is forecast to grow 0.4%, which would offset the decrease by the same rate last month.

Meanwhile, the preliminary consumer sentiment survey conducted by the University of Michigan (UoM) has shown consistent improvement after touching a yearly low of 79.2 in August, 2014. External factors have affected this indicator as it has been underperforming to forecasts. The survey is widely regarded as a leading indicator of American consumer spending. This time out, the UoM Consumer Sentiment Index is expected to be 91.3, a slight rise from the 90.7 posted last month.

Retail sales in the United States had dampened the USD appreciation on multiple occasions so it was a welcome surprise when May’s retail figures beat expectations. Core retail sales jumped to 1.0% on a forecast of 0.7%. Retail sales came in at 1.2% when the expectation was for a reading of 1.1%. The forecasts have been optimistic given that American consumers were not spending in the first quarter. The data for the past three months was revised upward, which is building the expectation of stronger consumption growth for the rest of the year.

U.S. weekly jobless claims rose above expectations slightly last week coming in at 279,000. Employment has been the strongest pillar on which the Federal Reserve has built its case for an economy that can sustain higher interest rates. The nonfarm payrolls (NFP) report validated that thinking, although several questions were raised about how transitory the factors were that plagued the first quarter of 2015, and how likely they were to affect the second quarter. The improving U.S. retail sales number suggests a rate hike seems plausible.

The Ebb and Flow of the Euro

The EUR/USD continues to bounce back and forth as the market tries to price them in a week with few economic releases. The USD closed last week on a strong note thanks to the NFP number, but the gains were short-lived as they were taken over by a strong euro influenced by Greek debt agreement optimism. On that score, Greece appears to be equal parts tragedy and comedy. Uncertainty continues to swirl in the market with the looming possibility of a Grexit.

The International Monetary Fund expressed that it not aligned with the interests of the European Central Bank or the European Union, making the Washington-based organization more likely to force Greece out of the eurozone if it defaults at month’s end.

Strong retail sales boosted the USD as we approach the end of the week. The pair managed to break below 1.12 with the release of the economic indicators the morning of June 11, but it quickly bounced back to current levels around 1.1240. The U.S. PPI released tomorrow at 8:30 a.m. EDT will be followed by the UoM’s preliminary consumer sentiment survey results at 10 a.m. EDT. The impressive NFP report for May has restored confidence in the Fed’s pending decision, but further evidence of the softness that stunted growth in the first quarter will once again raise doubts ahead of the Federal Open Market Committee meeting on June 17.

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza