US Retail Sales Rebound to Boost Dollar

Dollar rally lost steam after Trump press conference

The so called Trump rally in stocks and the dollar hit a bump on the road as the President-elect first press conference to talk about his solution to potential conflicts of interest offered more questions than answers. His comments on drug prices sent pharmaceuticals lower and investors sought refuge in safe haven assets such as fixed income and gold. The precious metal traded over $1,200 for the first time since November 23.

Donald Trump’s infrastructure spending and fiscal stimulus plans sparked the upward trend in markets following his unexpected win but as his inauguration as the 45th President of the United states approaches there has been little in the way of details on those initiatives. U.S. fundamentals have recovered prior to Trump taking office and the dollar strengthened after the U.S. Federal Reserve’s rate hike in December. Hawkish comments from Fed members hinting at 3 or 4 more rate hikes to come in 2017.

The United States Census Bureau will release the retail sales data on Friday, January 13 at 8:30 am EST. The forecast calls for an improvement on month-over-month data for retailers. The range of forecast goes from 0.5 up to 0.8 percent from analysts showing a recovery from a weaker than expected sales figures in November. Retail sales have stopped various dollar rallies in the past showing a disconnect between consumer confidence and spending, this time around the number could close the gap between the two appreciating the dollar in the process.

The EUR/USD gained 0.261 percent in the last 24 hours. The Euro is trading at 1.0636 versus the USD. The first Trump press conference since July focused to much on “fake news” and very little on what the market wanted to know. Divisive topics such as Russia and media coverage are great talking points during the election, but as the market showed when Donald Trump is elected the market is non partisan and is looking for details on economic plans for when the president-elect assumes the office, not a staged confrontation with his detractors. The Trump rally might no be totally dead and could get a shot in the arm if the December retail sales improve but it should serve as a lesson to the President-elect that the race is over and the time to focus on making America great again is fast approaching.

The USD/MXN lost 0.397 percent today. The pair is trading at 21.6967 after the USD lost some momentum on Thursday. The peso recovered from record lows seen during the press conference by the U.S. President-elect. The currency is extremely sensitive to anti-Trade risk much more than a comparable currency such as the Canadian dollar that shares with Mexico a common trading partner. The peso went through the 22 pesos price level but it quickly appreciated as Trump diverted to other targets.

The MXN is expected to remain under pressure before more details on Trump’s trade policy emerge. The currency has lost more than 5 percent in 2017 and due to being a proxy for other emerging market currencies it has disconnected from the fundamentals of the Mexican economy.

Mexican central bank chief Agustin Carstens called the depreciation of the currency exaggerated on Thursday and is worried about the inflationary effects of a weak peso. The Mexican economy grew 2.2 percent in 2016 slowing down from a year earlier. Mexico exports more than 85 percent of goods to the U.S. and its third largest partner, a renegotiation of the NAFTA could significantly impair the Mexican economy, but at this point its unclear what kind of deal would be signed off by Trump.

Market events to watch this week:

Friday, January 13
8:30am USD Core Retail Sales m/m
8:30am USD PPI 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

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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