High Retail Sales = Cha Ching For The Buck!

So the story of the day was the Retail Sales report which came out at 8:30 am EST. Both the overall and core retail sales report came out unexpectedly higher than expectations which caused the dollar to rally today. The consensus for the overall report was 0.1% with a forecasting range of -0.3% to 0.3%. The actual number came out at +1.0%. With the core retail sales report which excludes automobiles, the consensus was 0.3% with a forecasting range of -0.2% to +0.4%. The actual core number came out at 1.1%. So who cares about the forecasting range?

You’ll notice that the forecasting range for both the overall and core retail sales report was very narrow. This means that economists came to a pretty good agreement as to what the report was going to say. Since the report came out higher than the median consensus of the forecast range, the market reacted nicely since the data surprised a majority of the economists out there. If the forecast range had been wider, even with a surprise, the market may not have reacted as strongly.

Another reason for the dollar run was due to the fact that retail sales rose even with lower gas prices. In fact, gas stations reported higher sales this time followed by the dip they had on the last report. You’ll remember that the last few months, gas prices have really hurt the retail sales numbers but sales in other areas have been decent. Year over year retail sales are up 5.6% since last November and the report today points signs towards a strong consumer market. However this gain might be caused by early Christmas shopping for all those shoppers who don’t like to wait until the last minute.

Because of the high retail sales report, we should see a jump in consumer spending. The next thing to watch for is whether or not consumer prices makes a jump because of the strong spending. CPI will be watched closely this Friday as it will give the Fed another inflation measure. Since the Fed keeps talking about inflation worries, a high CPI number could lead to another dollar rally because it would make the Fed hawkish.

My chart analysis predictions were pretty much shot down by the positive retail sales report, but I wasn’t getting any strong directional indications anyways so I’m not too surprised. I’ll have to look at my crystal ball again and see if today’s movement gives me any clearer signals.

Coming Up:

GBP Retail Sales
4:30 am ET; 9:30 GMT
Previous= 0.9%; Consensus= -0.2%

Chart Analysis:

EUR/USD

The EUR/USD is hovering around support at its 100 SMA on the 4hr chart. Daily stochastics is heading down which signals more downward movement in the medium term. However, 4hr stochastics is almost in oversold territory which could mean a short term rally. Until the GBP retail sales comes out tomorrow, I think the Euro will hold support around the 100 SMA line. It may dip a little bit to around 3150 but we should then see a short term rally to around 3200. The 38% Fib line on the daily chart is still a long way away so there is a lot of potential for a downward move over the medium to long term time frame. If the fundmentals continue in the dollars favor we could see the pair get as low as 3030.

GBP/USD

The Cable dropped down once again on the dollar positive retail sales report. It got as low as the 50 SMA on the 4hr chart and the support held as the pair jumped back up to around 9700. Stochastics on the 4hr and daily chart are giving conflicting signs. The daily stochastics was headed down but has now crossed back up which could mean another rally. However, the 4hr stochastics is heading down after just leaving overbought territory which could mean a short term drop. I still think 9500 and 9800 will be the inflection points for the mean time since 9500 is where the 100 SMA is on the 4hr chart, and 9800 is the 15 year high for the Cable. Again, I will wait and see where the pair goes before making any concrete decisions.

USD/CHF

The Swissy’s technicals are actually lined up which means we might have a trade here. The pair has slightly broken its 100 SMA on the 4hr chart and looks to be headed towards 2100. The 38% Fib level is at 2130 and it looks like a good place to go short. The 4hr stochastics is almost in overbought territory and I think by the time it gets there the price should be around 2130, making it a good place to sell. The daily stochastics is also headed up it it will probably be right around overbought territory if the pair does move up to 2130 which makes it another good reason to short the pair at that level.

Trade Idea:

Short at 2130; Stop Loss= 2210; Target= 2050

If this trade doesn’t trigger tomorrow I’ll have to revisit the charts again and see if it still looks like a good trade.

USD/JPY

The Yen is also giving really good signs for a downward move. First, the price has currently hit resistance at its 50 SMA on the daily chart. Second, the daily stochastics is in overbought territory and the 4hr stochastics is also heading into overbought territory. Third, I am seeing the forming of a bearish hidden divergence on the daily chart and a regular bearish divergence on the 4hr chart. These are all strong indications that the pair will drop and I only like to put my money in when I feel like I have a good chance of winning.

Trade Idea:

Aggressive- Short at market (117.55); Stop loss= 118.50; Target= 116.50

Conservative- Short at 117.75; Stop loss= 118.50; Target= 116.50

Conclusion:

We have a light economic load tomorrow. GBP retail sales is the only major report that could possibly move the market, but other than that it should be more of a technical day. However, as always, if the GBP retail sales number shows a big surprise, be ready for the charts to fold to the power of the fundamentals.