Setting your alarm to trade the Australian Retail Sales report on Monday? Don't forget to bookmark this trading guide for some neat tips on how to make pips trading the news!
What is this report all about?
The Australian retail sales report is basically a measure of whether our mates from the Land Down Under are spending or not. Every surfboard, Billabong rash guard, and boomerang that is bought up will be recorded under retails sales. It basically represents a picture of the retail industry in Australian, and whether it is growing or not.
This past October, retail sales is projected to have increased by 0.4% ,which would mark the third consecutive month of positive growth. Keep in mind that last month we got a pleasant surprise when the report printed better-than-expected growth at 0.5%. Could we see a repeat performance this Monday? Tune in at 12:30 am GMT to find out first-hand!
How does AUD/USD normally react?
Over the past 5 releases, AUD/USD has had a positive correlation with the report. When retail sales growth printed higher than anticipated, we've normally seen AUD/USD spike higher. On the flip side, when the report disappointed, the bears took over and dragged AUD/USD lower.
Interestingly though, regardless if it comes in better or worse than expected, the move normally isn't sustained. Price action normally just retraces back to the daily open price by the end of the Tokyo session. Furthermore, when the Tokyo highs and lows are later retested during the London or New York sessions, they hold quite nicely as resistance or support.
Here are a couple of charts of the last two releases of the retail sales report:
October 4, 2012 - Actual 0.2% vs. expected 0.5%
We can see that AUD/USD shot lower when the report printed worse than expected last month. However, the move wasn't sustained, and the pair completely reversed its gains before the end of the Tokyo session. The Tokyo high at around 1.0230 held and the daily open held as solid resistance and support though, as price repeatedly bounced off those two levels. Price only broke through near the end of the New York session, setting a new high in the process.
November 5, 2012 - Actual 0.5% vs. Expected 0.4%
AUD/USD reacted in correlation to the report, which printed higher than anticipated. The pair shot up by 25 pips before finding resistance at around 1.0365. Just like in October, the daily open held nicely as support, as AUD/USD retested and bounced off it midway through the London session.
Tips and Tricks
After observing how AUD/USD reacts on days that the retail sales figures are made available, I think there are three strategies you can try trading on this day.
- Trade the news - As I mentioned earlier, the pair has a positive correlation to the report. One strategy would be to go with a straddle trade, and set orders above or below key levels. Don't be greedy and aim for about 20 to 30 pips, as the move isn't normally sustained.
- Fade the initial move - The past few releases show that the initial move isn't normally sustained. Another strategy would be to wait for price to stall at a support or resistance level, then put on a position in the opposite direction. You can set a target for either the day open or the opposite Tokyo high or low, since price has reacted to these levels in the past.
- Scalp the DO or Tokyo High - These two price levels have seen a ton of interest in the recent past and we may see the same happen on Monday's release. Make sure to keep a tight stop and pay attention as you never know if price will suddenly go against your trade!
While these all seem like viable trading strategies, be aware that there is NO guarantee how it may play out. Be sure to keep your risk in check! If you're not comfortable with any of the above strategies, you can sit out and watch and observe instead!
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