Trading Guide: U.S. Retail Sales Release

Updated from its original posting on June 12, 2012

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 later this week, 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!

What to expect

For the month of March, the headline retail sales figure is expected to show a flat reading following the previous month’s 1.1% uptick. Meanwhile the core version of the report could print a mere 0.2% increase after the previous 1.0% growth. Not exactly an upbeat picture of the consumer sector, huh?

The recent jobs report explains expected slowdown in consumer spending as the U.S. unemployment rate remains above 7% while wage growth is declining. This is most likely why Americans are less willing to spend and would rather keep their money in their pockets. With the dismal March NFP reading, some analysts are even predicting negative retail sales numbers for the month!

Based on the U.S. dollar’s reaction to the latest NFP release, it appears that the currency is reacting to fundamentals rather than risk sentiment. With that, a weaker than expected retail sales report could lead to a dollar selloff while a stronger than expected figure could provide support for the Greenback.

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.

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