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Today’s trade will focus on US retail sales at 8:30 am EST, but before that we will take a look on how yesterday’s reports may affect today’s trade.

First, we saw a surprise as the US Trade Balance number was reported at -58.87 bln versus the consensus of -63.0 bln. We haven’t seen a figure that low since August 2005, and it is consistent with the uptrend in the past few reports. What a great number for the US, but market reaction was muted because of the FOMC interest rate statement at 2:15 pm EST. As expected, the Fed kept interest rates at 5.25%, and their verbage was little changed except they noted the “mixed” economic performance as of late, and that the housing slump has been “substantial” (For an awesome breakdown of Fed statement check out Forex Gump’s blog) So, the Fed is still focused on inflation more than current economic growth. This has further pushed back market expectations of when the Fed will actually cut rates.

On the other side of the currency pair, there are reports that Japanese officials may cut growth forecasts, further pushing the value of the Yen downward against all of the majors. Is the Yen selloff a little overdone? Maybe. I think it has a little bit more to go before we call it oversold, but against the Dollar we may see a reversal sooner than later.

Even after the Dollar correction, I still see the market as bearish on the Dollar. And with the Yen at its current levels we may see a short term reversal in this pair in the 117.00 level. Today’s US retail sales report may be the catalyst to spark a move. The US retail sales report consensus is approximately 0.2% for the core number. Now, with the holiday season starting in November we will probably see a rise in retail sales, but some economists think with the amount of money consumers are saving from lower gas prices the number should be higher which means the market may actually be disappointed.

With all of this, I’m going to play a weaker retail sales number and short the Dollar against the Yen:

Short 1 lot USD/JPY at 117.00, stop at 117.50, pt1 at 116.60, pt2 at 116.35

Good luck and good trading!

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