Dollar Takes Stride on Retail Sales

Last updated 12/11/2009 9:28 AM ET (GMT -5) 3 Comments

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Kathy Lien

Director of Currency Research, GFT

The dollar staged a sharp rally after it was reported that Retail Sales came in better than expected, to some extent confirming last week’s stellar job numbers. USD/JPY quickly reversed direction, rallying more than 1.0% as a result. Early trading sees all major pairs losing ground against the dollar except for the aussie and kiwi. The immediate reaction to the good news continues a new pattern that started with the report on Non-Farm Payrolls. Good U.S. data has translated into dollar strength, rather than a pick-up in high-beta currencies.

Retail Sales gained 1.3% in the month of November, more than doubling estimates. Meanwhile, purchases excluding automobiles surged by the most since January. Sales were broad based, driven mostly by purchases of electronics and building materials. The increased electronic spending indicates that the consumer has returned, at least for the holiday season. The most important factor about this report is that it provides confirming evidence that the labor market has reached a turning point. Last week, Bernanke described his skepticism about the health of the economy, citing that more sustained evidence is needed to support optimistic conclusions. It seems that Retail Sales is the first step in fulfilling Bernanke’s wishes.

Keep in mind that the University of Michigan Consumer Confidence report is expected later this morning. The mounting evidence for labor stabilization and increased spending suggests that confidence has improved.

Comments (3)

HT

December 11, 2009 at 09:41 AM ET

Excellent analysis as usual!
I read your analysis last night (12/10) and what you said about Retail sale and NFP behavior and It comes out exactly this morning - right after the news. USD rallies on good US data. In fact, traders are factoring US rate in each of US good data now. It's more of fundamental rather than risk aversion

tjbab

December 11, 2009 at 09:53 PM ET

I hate to put a damper on peoples parade as far as a turning point in labor,what happens when the holidays are over and all the temp workers are laid off.? What happens when retail shopping is over because christmas is over.January will tell a different story

Justin Parizi

December 12, 2009 at 05:31 AM ET

I've heard the federal reserve is notifying banks holding TARP funds to further restrict commercial lending 75% collateralized 50% of which must be in cash signifying a second stimulus in the summer of 2010, the majority of "experts" and "economic enthusiast" were all saying the dollar is likely to lose 30-60% of it's value under inflation or "mild stagflation" for 2010 when the fed pumps an additional 1.5 trillion (12 trillion) intro circulation.

What is the FX360 consensus about the dollar and it's direction for 2010?

What are some ways to profit off of this hypothetical scenario (in the forex) ?

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About The Author

Kathy Lien began her FX trading career 10 years ago at J.P. Morgan Chase. After graduating New York University’s Leonard Stern School of Business at the age of 18, Kathy joined the bank's interbank FX trading desk and eventually moved to the cross markets proprietary trading desk. In the interbank market, her ability to create solid fundamental and technical analysis from the myriad of information on the market helped her trade forex spot and options. Her experience eventually led her to be chief strategist at Daily FX where she worked until she joined GFT in 2008.

With her knowledge of forex, as well as her experience trading other products, such as interest rate derivates, bonds, equities, and futures, Lien has built a reputation as an international currency analyst. She is frequently quoted on CNBC, Bloomberg, Fox Business and Reuters. Lien has also written for publications like Active Trader, Futures, and SFO magazine. She is the author of the newly updated Day Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Boris Schlossberg.

To buy Kathy’s newly updated Day Trading and Swing Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, click here.