USD Weaker Ahead of Retail Sales

U.S. Consumers Confident Yet Still Not Spending

The paradox of the U.S. consumer continues to confound economists. Wages and the number of jobs have risen to before crisis levels but while their confidence remains high in the short term consumers have opted to save. The U.S. economy depends on consumer spending and the retail sales with few exceptions disappointed in the last two years. Most of the strong USD trends that start after NFP came to a crash after dismal retail sales.

Energy savings due to the low price of gas has not translated into higher consumer spending and until that happens the retail sales number will remain low. Global uncertainty adds to America’s woes as consumers pull back spending preventing a virtuous cycle from being formed. U.S. Federal Reserve Chair Janet Yellen finished her two testimonies this week making clear the central bank is still somewhat hawkish on the U.S. economy in particular the jobs component, most of the risks come from abroad.

Retail sales are expected at a 0.1 percent increase month over month. The core reading, excluding auto, is forecasted flat after retailers lost sales opportunities on winter apparel given the warm winter. The U.S. Census Bureau will release the retail sales data on Friday, February 12 8:30 am EST.

Fed Chair Janet Yellen wrote the following as part of her prepared remarks ahead of testimony in from the U.S. Congress Committee:

Financial conditions in the United States have recently become less supportive of growth, with declines in broad measures of equity prices, higher borrowing rates for riskier borrowers, and a further appreciation of the dollar. These developments, if they prove persistent, could weigh on the outlook for economic activity and the labor market, although declines in longer-term interest rates and oil prices provide some offset. Still, ongoing employment gains and faster wage growth should support the growth of real incomes and therefore consumer spending, and global economic growth should pick up over time, supported by highly accommodative monetary policies abroad. Against this backdrop, the Committee expects that with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace in coming years and that labor market indicators will continue to strengthen.

Chair Yellen did not address the consumer spending paradox as the rise in wages and number of jobs has not in fact changed consumer behaviour. She does mention later on in her remarks the rise in the sales of cars and light trucks, but attributes that more to the effect of the lower price of oil. Oil savings have not been passed on directly to the economy, and remained in some cases just that savings. The core retail sales numbers remove the auto data to give a less volatile picture.

The fall in the price of oil and central bank anxiety this week has put the USD on the back foot ahead of the release of the retail sales data. Lower than expected, which would mean a negative reading, will put further negative pressure on the dollar. Next week will see a return of China to the markets after the week long Lunar Year holiday which could further deteriorate market conditions as the Asian market catches up to stock market losses.

USD events to watch this week:

Friday, February 12
2:00am EUR German Prelim GDP q/q
8:30am USD Core Retail Sales m/m
8:30am USD Retail Sales m/m
10:00am USD Prelim UoM Consumer Sentiment

USD Weaker Ahead of Retail Sales

*All times EST
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

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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 has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. 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