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Can Dollar Yen Return to 90.00 on US Retail Sales Data?

Last updated 12/11/2009 5:24 AM ET (GMT -5) 8 Comments

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• Chinese data positive helping risk flows overnight
• Moody's - no plans to downgrade UK debt
• Asia up 2.5%, European equities up 1% at end of week
• Oil pops back above $71/bbl
• Gold steady at $1137/oz.

Overnight Eco

• JPY Household Confidence 0.1% vs. 0.6%
• GBP PPI Input 0.1% vs. 0.2% eyed
• GBP PPI Output 0.2% vs. 0.4%

Event Risk on Tap

• CAD NHPI
• USD Retail Sales expected at 0.6%
• USD Import Prices expected at 1.2%
• USD Prelim UoM Consumer Sentiment expected at 68.7

Price Action

• USD/JPY trades to 89.00 as risk flowsimprove on China news
• AUD/USD steady at .9150 for most of Asian and Europe
• GBP/USD retakes 1.6300 on Moody's news
• EUR/USD better bid rolling past 1.4750 as risk flows resume

Risk appetite returned to the currency market on the last trading day of the week after monthly Chinese economic data showed continued growth in the Middle Kingdom, providing support for the global recovery trade. Chinese economic data for November was somewhat mixed but generally positive with Industrial Production rising by 19.2% versus forecast of 18.2% while inflation ticked up by 0.6%. This was the first increase in price levels in ten months indicating that deflationary pressures are receding.

As we wrote earlier, “Although other measure of economic activity such as Trade Balance (19.1B vs.24.0B) and Retail Sales (15.8% vs. 16.6%) were lower than forecast, the overall tone of the data was overwhelmingly positive demonstrating that China continues to expand strongly and remains the primary engine of global growth.”

Meanwhile in UK the PPI prices were a bit softer that forecast printing at 0.2% vs. 0.4% but still managed to rise at their fastest annual rate in nine months due to higher oil prices.  The pound sold off mildly on the news as markets were looking for a hotter print, but the unit benefited from an announcement by Moody’s that it has no plans to downgrade UK sovereign debt. UK fiscal deficit problems have weighed on sterling all week long and while we think the issue is far from resolved, market concerns may be allayed for now especially if global economic data continues to prove supportive for the recovery trade and traders begin to speculate that UK government receipts will improve accordingly.

To that end today key event risk will be the US Retail Sales report due 13:30 GMT. Markets are looking at an increase in the core number of 0.5% from 0.2% the month prior. Preliminary data has been mixed with Christmas spending generally subdued but not horrid so far. Still, the US consumer remains cautious and if the numbers miss today, they could reverse much of the overnight flow if they lead to profit taking in equities ahead of the week-end.  On the other hand an upside surprise would be yet another piece of evidence that final demand is improving across the globe and that economic recovery is maintaining momentum into 2010.  A strongly positive number should help steepen the US yield curve and push USD/JPY higher – perhaps to another test of 90.00 as result of such news.

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Comments (8)

FXDragon

December 11, 2009 at 07:48 AM ET

what does n.s.a stand for?

bschlossberg

December 11, 2009 at 09:10 AM ET

Not seasonally adjusted

hsbc

December 11, 2009 at 09:40 AM ET

this eur is really falling. seems that for watever reason, they are selling. wat do u reckon, fx dragon?

FXDragon

December 11, 2009 at 01:58 PM ET

The Dragon is upset maan:) But not panicked yet since its not out of control in correlation to other pairs. I guess very good us data and Greece, what can i say. Rally after fed mtng. next week is what i hope for... You know i havent lost since i dont use stop loss, i just keep buying. So i owe a lot at the moment:) But you know it cant stay that way as long as the dow is over 10,000 unless history is changing! What do you think? Still short till 1.45 like Boris?

hsbc

December 11, 2009 at 06:28 PM ET

i think we can get some bounce up but i am not sure about it breaking 1.50

FXDragon

December 11, 2009 at 08:31 PM ET

I sense range trading till February. I'll ride those rollercoasters.

hsbc

December 13, 2009 at 11:18 PM ET

dragon, i think it may really reach 1.45 today

hsbc

December 13, 2009 at 11:21 PM ET

opps change that. dubai govt intervene .... yahoo

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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.