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U.S. Dollar Tanks After Ugly Retail Sales Figures

Last updated 1/14/2010 8:57 AM ET (GMT -5) 6 Comments

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Kathy Lien

Director of Currency Research, GFT

The U.S. dollar fell aggressively following the horrid retail sales figures.  Weak consumer spending coupled with the disappointing labor market numbers last week guarantee almost no action by the Federal Reserve before the summer. With bond yields expected to plunge on this report, the dollar should continue to fall, particularly against the Japanese Yen - support for USD/JPY is now at 90.50.

Given the reports of more consumers in the stores, we have to believe the drop in retail sales came from deep discounting. Consumer spending contracted by 0.3 percent in December and excluding auto purchases sales fell 0.2 percent.  Based upon these numbers, the strong holiday shopping reports that we have heard from retailers appear to be a fallacy even though the November figures were revised higher. A closer look at the data reveals that demand for electronics, general merchandise, clothing and motor vehicle parts fell the most and with the need to spend money on holiday purchases, consumers also ate out less.  The retail sales report was the last opportunity for some optimism in the dollar. We expect the Federal Reserve to react to the weak consumer spending report by adopting a tinge of dovishness in their monetary policy statement on January 28th.   The only silver lining in the retail sales report is that with the upward revision in the November number, consumer spending will contribute positively to GDP in the fourth quarter.

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Comments (6)

IT

January 14, 2010 at 12:58 PM ET

Kathy, I noticed that you say the import prices did'nt change. But they went from 3.7 in November to 8.6 in Dec. that looks like a big increase to me. Can you please explain?
Thank you.

klien

January 14, 2010 at 12:58 PM ET

The monthly data was flat. The annualized data increased

m.hollingshaw

January 14, 2010 at 03:48 PM ET

Might be a irrelevant question but do you think that during the Asian session the same price action will continue as what's happened? I remember a few weeks ago you wrote how the trend seemed to be that the US market was following Europes and Asias sessions rather than the other way around and I didn't know what you thought the case may be given a large disappointment like the retail sales and given the new Fin Min's reluctancy for a strong yen.

Doobp

January 15, 2010 at 01:55 AM ET

I agree that price action in asian session may persist in europe session and US market. But I do see exceptions too. But breeching of keys levels is the impt key.

Sue_4

January 14, 2010 at 04:06 PM ET

Kathy , can you publish a year 2010 calendar of main events? just like you did last year?
We love it. Thanks
Sue

FX360 Sharon

January 15, 2010 at 10:17 AM ET

Hi Sue,

You can get the 2010 Q1 Economic Calendar here. It also includes a forecast from Boris and Kathy:

http://ow.ly/WP6O

Enjoy!

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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.