How To Trade the U.S. Retail Sales Report

If you’re thinking of trading the news, the U.S. retail sales release could give you a nice opportunity to catch some pips this week. Our trusty economic calendar reveals that this report is due tomorrow at 12:30 pm GMT, so let’s figure out what this report is all about.

The retail sales report serves as an excellent gauge of consumer spending, which accounts for roughly 70% of overall economic growth. That’s why a lot of traders are keeping close tabs on this report, and why you should watch out for it, too!

For the month of May, the headline retail sales figure is expected to show a 0.1% decline following the previous month’s 0.1% uptick. Meanwhile the core version of the report could print a mere 0.1% increase. Not exactly an upbeat picture of the consumer sector, huh?

Recent jobs reports could shed light on the possible slowdown in consumer spending as the U.S. unemployment rate remains above 8% while wage growth is declining. This could explain why Americans are less willing to spend and would rather keep their money in their pockets.

If the actual figures come in line with expectations or fall short, it would mark the first monthly decline in retail sales growth for this year. Analysts even pointed out that this quarter’s retail sales growth is unlikely to surpass the first quarter’s 2.7% jump in spending, which was the fastest pace of growth since 2011.

The Past

Legend:

  • Pink Line – Day Open
  • Purple Line – Week Open
  • Orange Lines – Daily ATR (Day Open Price +/- ATR [20])
  • Red Lines – Weekly ATR (Week Open Price +/- ATR [20])
  • Green Lines – Previous Day’s High/Low
  • Blue Lines – Previous Week’s High/Low

April 16, 2012

US headline retail sales 0.8% vs 0.4% | Core retail sales 0.8% vs 0.6%

EUR/USD Chart

May 15, 2012

US headline retail sales 0.1% vs 0.2% | Core retail sales 0.1% vs 0.3%

EUR/USD Chart

If we’ve learned anything from the past two releases of U.S. retail sales data, it’s that the report tends to have a major impact on the markets. On both occasions, we saw EUR/USD display extended moves that were easily 100 pips long and lasted well into the end of the New York session.

Also of note is how the markets treated the actual results. Rather than buying the dollar at the sight of better-than-expected U.S. retail sales data, the markets sold it off, sending EUR/USD higher up the charts. Meanwhile, the dollar strengthened and EUR/USD fell sharply when worse-than-expected results were published.

What this suggests is that the report has the potential to direct risk sentiment, as highly positive results tend to result in risk taking while disappointing results bring on safe haven flows that benefit the dollar.

How do I trade this?

The best way to take advantage of the news could be to go with a non-directional bias and simply go with a straddle play. By this, I mean you can place buy / sell orders above / below the current price and take advantage of any strong reaction to the release of the report.

If you’re a conservative trader, you can consider aiming for the next major inflection point and going for just 30 to 50 pips for a target. Since it’s a news trade, go with a stop of about 20 to 30 pips and hold the trade for not more than an hour.

On the other hand, if you believe that we’ll see an extended move like we’ve seen in the past two releases, then you can consider holding until the end of the New York session when volatility tends to die down.

Just be aware that the U.S. PPI report will also be released at the same time and this may or may not have an effect on price action. Also take note that German bond auctions will be taking place during the London session. Seeing as how the spotlight has focused in on European bond auctions as of late, a surprise from that event could make or break risk sentiment tomorrow!

In any case, make sure you practice good risk management techniques! Good luck trading this report tomorrow, homies!


  • Vranindy

    Thanks. closed avg 40 pips EUR/USD :)

  • Bijoymj

    This helped. Thanks. Closed a Buy position (EUR/USD) gaining 50 pips executed on non-directional bias method.

  • Ajaykumaramar1992

    kya hoga sell /buy