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Tomorrow at 1:30 pm GMT we’ll get a sneak peek into the U.S. consumers’ spending habits in December.

Will the numbers point to healthy economic activity? Or will December’s data cause concerns for market players?

Here are the major points you need to know about the release:

What the heck is a retail sales report?

Every month, the government sends out surveys to retailers to measure spending in department stores, electronic shops, car dealerships, gas stations, and restaurants.

The report features a “core” retail sales figure, which removes volatile items such as automobiles from the mix.

Traders pay attention to the release because consumer spending makes up 70% of the U.S. GDP, one-third of which comes from retail activity.

What happened last time?

  • Headline retail sales (m/m): 0.3% vs. 0.8% expected, 1.8% in October
  • Core retail sales (m/m): 0.2% vs. 0.7% expected, 1.8% in October

Retail activity grew by 0.3% in November, less than half of the 0.8% growth that markets had expected.

Core retail sales also missed at 0.2% after a 1.8% increase in October.

A closer look revealed that electronics and department stores took the most hits, though health & personal care and miscellaneous stores also saw modest declines.

The dollar initially fell at the disappointing release, but it quickly recouped its losses when traders priced in how much retail sales have improved from a year ago.

Besides, the much-awaited FOMC policy decision was due a few hours later and many looked forward to a hawkish Fed announcement.

What are traders expecting this time?

  • Headline retail sales to dip from 0.3% to 0.2% in December
  • Core retail sales could slow down to 0.1% in December

Retail trading is expected to slow down further in December as high prices and supply restraints limit consumer demand.

Headline retail sales could dip to 0.2% while the core figure could see only a 0.1% uptick for the month.

Planning on trading the event?

Remember that the dollar is NOT having a good week against its major counterparts.

It lost pips as markets become confident on the (limited) impact of the Omicron variant and on the Fed maybe not derailing global economic recovery even as they taper/tighten their easy monetary policies.

MarketMilk™’s Overview of the Majors tells us that the dollar has lost the most value against the comdolls and higher-yielding bets like GBP and EUR.

If Friday’s numbers surprise to the upside, then the Fed would have fewer reasons to worry when they get aggressive with their tightening schedule. We could see a risk-taking scenario that would drag the safe-haven dollar lower.

If the report significantly misses expectations, though, or if traders use the event to take profits ahead of the weekend, then the dollar could gain pips and end the week higher against its “riskier” counterparts.