Week in FX Americas – Soft US Data Calls For A Gradual Taper Approach

Friday’s US data was disappointing in various circles. In the end it probably has more individuals shifting into a neutral tapering “dollar amount camp” for next weeks FOMC meet.

US retail sales were soft in August, rising just +0.2% in total and +0.1% ex-autos. On the plus side were the upward revisions to the previous two-months. An eternal optimist would have individuals deciphering the modest rise in a positive light – the trajectory of spending still seems to be rising at a healthy pace. The August sales level was +5.1% annualized above Q2, led by a rise in motor vehicles. The weakness was in the large department store categories, falling -0.1%.

Consumer spending will be seen as the key to pickup in growth in H2. Tax hike drags are expected to fade and if you combine better domestic fundamentals this should lead to consumer finances improving even further. To date, rising salary incomes have helped to increase family wealth and are repairing many balance sheets.

However, consumer sentiment seems to be a problem, which will probably add to concerns about the pace of growth in H2. The University of Michigan consumer sentiment index fell to 76.8, way below the consensus print of 81.8. The Fed is expected to still move to taper next week but the recent soft data certainly supports a gradual approach from Bernanke and company. This would certainly appease Lagarde at the IMF, both the ECB and BoE and more importantly the EM economies.

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* EUR Euro-Zone Consumer Price Index
* GBP Consumer Price Index
* EUR German ZEW Survey (Economic Sentiment)
* USD Consumer Price Index
* USD Federal Reserve FOMC Two-day Meeting Begins
* USD Fed Pace of MBS Purchase Program
* USD Federal Open Market Committee Rate Decision
* USD Fed’s Bernanke Holds Press Conference in Washington
* NZD Gross Domestic Product
* CHF Swiss National Bank Rate Decision

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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell