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Whattup, forex geeks!

Tomorrow at 1:30 pm GMT the world’s largest economy will print its retail sales reports for the month of October.

Here are points you need to know if you’re planning on trading the event:

But first, 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.

It doesn’t factor in the service industry, which includes things like air travel, professional medical care, or how much you pay your stylist down the street to fix your afro.

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. BFD, don’t you think?

What happened last time?

  • Headline retail sales dipped by 0.3% in September, its biggest in seven months, after seeing 0.6% gain in August
  • Core retail sales clocked in at -0.1% after seeing 0.2% growth in August
  • Lower sales of motor vehicle, building materials, hobbies, and online purchases dragged the figures lower

Retail activity contracted for the first time since February, which shook dollar bulls who were expecting a 0.3% increase in September. Heck, even the core figure decreased for the month!

The surprisingly weak report sparked fears that weaknesses in the manufacturing industry might be spreading to consumer activity. Not surprisingly, the odds of a Fed rate cut had also increased after the report’s release.

USD 15-Minute Forex Charts
USD 15-Minute Forex Charts

The disappointing report, together with doubts that China would purchase more U.S. agricultural products, dragged the dollar to new intraday lows that it had not managed to bounce from.

What are traders expecting this time?

Traders are expecting a bit of redemption from last month’s figures, as they see both headline and core retail sales improve in October.

Are market players setting themselves up for another disappointment?

Based on Powell’s testimony yesterday, Fed members aren’t expecting to make policy changes in December and in January. However, the Fed head honcho also warned that “policy is not on a preset course” and that he and his team would “respond accordingly” if they see data that cause “material reassessment” of their outlook.

If we see further (or material) weaknesses in consumers’ spending patterns, then some Fed members could re-evaluate what “neutral interest rate” means and support further easing.

But if October’s numbers erase most of the bad vibes from last month’s readings, then we could see the dollar gain ground against its major counterparts.

Planning on trading the dollar?

As you can see, the dollar is mixed against its major counterparts with gains against the comdolls but losses against its fellow safe havens.

USD Performance from MarketMilk
USD Performance from MarketMilk

A stronger-than-expected retail sales release could push the dollar to positive territory against the yen and the franc, or boost its gains against the comdolls.

Not sure which dollar pair to trade? Maybe this volatility table might help:

USD Volatility from MarketMilk
USD Volatility from MarketMilk