USD Weaker Ahead of US Retail Sales and Inflation Data

Strong consumer spending is needed for US growth

The market’s reaction to the monetary policy decision to hold rates unchanged signals a return of fundamental data influencing currency pricing. The U.S. non farm payrolls (NFP) release was still deep in the fog of the Brexit aftermath to make an impact. U.S. retail sales have shown signs of improvement from the disappointment of last year. Retail sales usually put a stop to dollar rallies of the past that were triggered by strong employment data. This time around the USD will come into the retail sales and inflation release lower after the rise of risk appetite has hurt the dollar.

Retail sales and the core reading (excluding auto) are the earliest look at American consumer spending. The U.S. is starting to break away from the paradox of strong consumer confidence but weak sales as retailers have seen an uptick in activity. Economists were expecting Americans to spend their energy and food savings, but instead they have sat in the sidelines. Retail sales data will be released on Friday, July 15 at 8:30 am EDT.

The EUR/USD lost 0.039 percent in the last 24 hours. The pair is trading at 1.1110. The EUR has not fully recovered from the after effects of the British vote of exiting the European Union. The EUR/USD was trading at around the 1.14 price level prior to the vote when it seemed the Remain camp would win the day, only to recipe a shock exit result. The single currency was sold against the USD from those seeking a safe haven during uncertain times.

The actions of the Bank of England (BoE) and the quick replacement of its Prime Minister have helped the market return to a stable trading environment. Stocks have rebounded and the EUR is slowly making its way after the USD has lost the preference of investors looking for riskier assets.

Inflation and retail sales data out of the U.S. will give a clearer indication on where the economic recovery stands. The U.S. Federal Reserve has been cautious as the economy has not performed as expected, but with growing macro headwinds coming out of Europe and Japan their patience has been the right call. The Fed is now more focused on inflation but is willing to let the economy “run a little hot” before being forced into a rate hike which at this time is the unlikeliest scenario. The Brexit vote will trigger a new round of easing in Britain and the European and Japanese central banks getting ready to unleash new conventional and unconventional measures to keep their economies from falling into a recession.

Market events to watch this week:

Friday, July 15
8:00am GBP BOE Gov Carney Speaks
8:30am CAD Manufacturing Sales m/m
8:30am USD CPI m/m
8:30am USD Core CPI m/m
8:30am USD Core Retail Sales m/m
8:30am USD Retail Sales m/m
10:00am USD Prelim UoM Consumer Sentiment

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

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

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