– Consumption – in spite of the strong US Dollar – remains in a rut as the global economy slows.
– Base effects lead to y/y improvement in retail sales figure.
– EURUSD trades between $1.0804 and $1.0878.
The cornerstone of US economic strength – consumption – is looking increasingly frail heading into 2016. A mixed but mostly disappointing Advance Retail Sales report today has the US Dollar reeling, no matter how you slice it. True, there was a y/y improvement in sales growth, but this is largely due to base effects: there was a sharp -0.7% decline in retail sales growth from last November to December, so a bounce in the yearly figure was all but guaranteed.
Investors are taking the data as a sign that the Fed might be forced to push back against rate expectations. Heading into this year, the Fed said there would be around four rate hikes while the market (per Fed funds) was predicting only two – one in June, one in December. However, after today’s data, it seems the market is even more pessimistic: only one rate hike is now being priced, basically a coin-flip between September and October. We’ve been skeptical of the Fed’s projected rate path given the risks surrounding the US economy, and this data feeds into our skeptical mindset about the US economy and the US Dollar.
Here are the data that’s whipping the US Dollar back and forth this morning:
– USD Advance Retail Sales (DEC): -0.1% as expected, from +0.4% (revised higher from +0.2%) (m/m).
– USD Advance Retail Sales (DEC): +2.2% versus +1.4% prior (y/y).
– USD Retail Sales ex Auto & Gas (DEC): 0.0% versus +0.4% expected, from +0.5% (m/m).
Chart 1: EUR/USD 1-minute Chart: January 15, 2016 Intraday
EUR/USD had been trading in a narrow range all morning and found the mixed US retail sales report to be a bullish catalyst initially/ EUR/USD has since retraced most of its move, having traded at $1.0921 ahead of the report to as high as $1.0983 thereafter. At the time this report was written, EUR/USD was tradding at $1.0943. Similar price action was observed across the USD-complex: initial USD weakness, then fade.
— Written by Christopher Vecchio, Currency Strategist
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