Retail Sales May Hold The Key To Risk FX

Last updated 9/15/2009 5:58 AM ET (GMT -5) 2 Comments

Forex Trading involves high risks, with the potential for substantial losses and is not suitable for all persons. Past performance is not necessarily indicative of future results.

Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• BoE's King - lower deposit rate may be necessary to lower reserves
• ZEW slightly weaker than expected
• Nikkei up slightly but Europe bourses lower
• OIl just below $69/bbl
• Gold hovers below $1000/oz. at $998/oz last

Overnight Eco

• NZD Manufacturing Sales -4.8% vs. -1.3% prior
• GBP RICS House Price Balance much better at 10.7% vs. -0.1% forecast
• AUD Monetary Policy Meeting Minutes
• AUD Housing Starts -3.7% vs. 2.1% expected
• CHF Industrial Production 2.7% vs. 7.8%
• GBP CPI 0.4% vs. 0.3%
• GBP RPI -1.3% vs -1.5%
• GBP DCLG HPI -8.3% vs. -9.5%
• EUR German ZEW Economic Sentiment 57.7 vs. 59.9 eyed
• EUR ZEW Economic Sentiment 59.6 vs. 57.8

Event Risk on Tap

• CAD Labor Productivity expected at 0.2%
• CAD New Motor Vehicle Sales expected at 5.1%
• USD Retail Sales expected at 1.8%
• USD PPI expected at 0.9%
• USD Empire State Manufacturing Index expected at 15.2
• USD IBD/TIPP Economic Optimism expected at 52.1

Price Action

• USD/JPY recovers aboev 9100 in very quiet trade
• AUD/USD drops below 8600 after dovish RBA
• GBP/USD craters nearlya cent after King suggest lowering deposit rate
• EUR/USD weaker than forecast ZEW pulls it below 1.4600

*Note just as we were about to go to press BOE Governor King stated that the UK central bank is entertaining the idea of lowering the deposit rate it pays member banks in order to lower currency reserves. The move would in effect extend the quantitative easing program of the BOE  and would be yet another attempt by the UK central bank to stimulate credit demand. The pound instantly dropped more than a cent on the news and reversed all of its gains against the other majors as the market viewed Mr. King's comments as highly negative to the currency.  The recent actions of the BoE suggest a much more dour outlook on growth and recovery than the market currently holds and also indicate a more than ready willingness to lower the value of sterling  in order to perhaps stimulate export demand.  The BoE is clearly unconcerned  about any inflationary pressures in the system and in fact continues to pursue a very dovish monetary policy. As a result cable could see further selling as the day progresses.

A  listless night of trade in the currency market with both EUR/USD and GBP/USD oscillating around the 1.4600 and 1.6600 levels respectively as they tried to consolidate their gains from the latest buying burst from recovery trade. The economic data proved relatively neutral and failed to produce any further upside momentum.

Meanwhile in Australia the AUD/USD& nbsp; also ran in to a wall of selling after the RBA minutes suggested no rate hike for the foreseeable future. The minutes stated that, “Members noted that the policy decision in the near term involved balancing the risk of over-staying an accommodative stance, and that of prematurely tightening and adversely affecting confidence and demand” As we wrote earlier, “The news surprised and disappointed Aussie bulls who had assumed that the RBA would adopt a more aggressive posture and would move to raise rates possibly as early as the end of 2009. However, given the tone of the RBA minutes it appears that Australian central bankers will remain stationary for the rest of the year and possibly through the first quarter of 2010.”

In UK the CPI data printed a tad hotter than forecast coming in at 0.4% versus 0.3% forecast but the gains were boosted by record increase in second hand cars which may have been a one off event due to the governments cash for clunkers program. Overall, core CPI remained steady at 1.8% while the Retail Price index saw a smaller contraction of -1.3% versus -1.4% the month prior.  The inflation data, along with surprisingly strong bounce in RICS survey has the pound outperforming other high beta currencies all night ling with EUR/GBP dropping below the 8800 handle.

In Germany the ZEW survey of  investor confidence improved from the month prior but at a slower pace than the market expected  printing at 57.7 versus 59.9 eyed. The net take away from the latest sentiment data seems to suggest that recovery continues to take hold in Eurozone’s largest economy albeit at a very moderate pace. The EUR/USD slipped below 1.4600 in the aftermath of the report but quickly recovered. Nevertheless, the lack of any forward movement in the pair over the past five days indicates that the risk trade  is getting tired and some sort of correction in both high beta FX and equities may be imminent.

One possible key to the future of the recovery trade could lie in today US Retail Sales numbers, the market is looking for massive jump of 1.9% from last month’s -0.1% contraction, but the data will be skewed by auto sales which befitted disproportionately from the cash from clunker program last month. The more important  number to consider will be the Retail Sales data ex-auto and ex-gasoline. That number may also be skewed by back to school spending, however if it fails to show any organic growth equities and risk FX could sell off in the aftermath. The consumer remains the weakest link in the recovery story not only in US but across the G-20 universe and if the Retail Sales data disappoint today it may finally trigger a correction in risk assets that many traders have been anticipating for weeks.

FX Upcoming

Comments (2)

rnp1

September 15, 2009 at 01:23 PM ET

Well presented, informative, useful and expressed in an understandable form.
Love your comments about "skewed" numbers. These attempts to lessen fear do nothing to stop the effects of market manipulation. Lets see where we go from here. You will, of coarse, clearly document and well explain it. Thank you, Boris!

bschlossberg

September 15, 2009 at 02:30 PM ET

Thank you for the kind words

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.