US retail sales next to challenge dollar bulls – Forex News PreviewPosted on May 14, 2018 at 4:31 pm GMTChristina Parthenidou, XM Investment Research Desk
On Tuesday, retail sales data due out of the US at 1230 GMT are expected to show that demand for goods continued to lose momentum in April, after being on the back foot the past three months despite consumers and businesses enjoying lower taxes since the start of the year. Following disappointing CPI figures released last week, a discouraging print on this front could justify recent views that the Federal Reserve might be less aggressive in raising interest rates this year and as an aftermath, the dollar could potentially face new pressure in the wake of the data.
According to analysts, retail sales are said to have increased by 0.3% month-on-month in April, slower than the 0.6% growth recorded in the previous month, while excluding automobiles, projections are for the core retail sales measure to rise by 0.5% m/m, compared to 0.2% seen in March. An unusually cold weather in the northern part of the US in April could have kept consumers indoors but this should not worry Fed policymakers much as weather effects could fade out in the coming months. Instead, policymakers might turn more cautious if the numbers prove that higher interest rates are offsetting the stimulatory effects arising from lower tax cuts in effect since January, curbing consumer spending, a key inflationary driver. At the same time, rising oil prices in the aforementioned month are also expected to have been a headwind to household spending and business activities.
After a downtick in US wage growth and consumer prices in April, a miss in retail sales could signal weaker inflationary pressures at the start of the second quarter, dampening speculation that the Fed would deliver three more rate hikes this year. Subsequently, dollar/yen could move down to the 109 round level which has been frequently tested as support the past two weeks, while a bigger negative surprise could shift focus to the 108 psychological level.
On the flip side, better-than-expected figures could spur buying pressure in the market, sending dollar/yen up to the 110 handle where the 200-day MA is currently located. A cross above this area could also open the way towards the 111 key-mark.USDJPY
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