US Retail Sales Worries Linger

The USD has struggled to maintain its position of strength versus other currencies ever since last month’s retail sales numbers were published. Though U.S. retail sales data for March showed a small increase of 0.9%, it left the market wanting after missing expectations for three consecutive months. In fact, the entire first quarter proved to be a rough ride for American economic indicators.

EUR/USD was trading below $1.06 before American consumer data was released, and after a string of disappointing economic indicators, the buck is trading at $1.12 per the euro. Adding to U.S. dollar bulls’ ennui, April’s nonfarm payrolls (NFP) data failed to give the greenback a lift. No doubt that stung as the NFP could often be counted on to prop the USD up if the previous month’s retail sales data proved to be a bitter pill to swallow.

However, the U.S. economy did manage to overcome one of its latest setbacks as the April NFP eased the disappointment in the previous month’s figures. The U.S. economy added 223,000 jobs in April, in line with expectations. The unemployment rate remained at 5.4%, but there was a further downward revision on the horrendous March numbers to 85,000. The retail sales figures have not outperformed expectations, and in some cases, failed dramatically to meet them.

Frugal Americans Creating Uncertainty

The bottom line is American consumers are not spending. They have not spent their energy savings as many had hoped, opting instead to save or repay debt. Such prudence has hurt retailers and the economy at large. Looking ahead, and as the price of oil rises, the amount of money Americans are saving on oil and gas that they could be spending will shrink. That’s likely to create more consternation for retailers, and in turn, it paints an uncertain retail sales data picture. That’s what is making this month’s numbers all the more important to investors. What’s released this month could be further extrapolated to set the U.S. retail landscape in the second quarter of the year.

U.S. core retail sales are expected at 0.4%, excluding auto sales. Including car sales, the forecast is for 0.3%. Last month, core retail came in at 0.4% (expected 0.7%), and retail sales was 0.9% (expected 1.1%). Historically, the retail sales data has a deep impact on the USD, especially when the indicator underperforms.

Wednesday’s macro-indicator schedule is packed as the following events will be announced (all times EDT):

1:30 a.m. Chinese industrial production
2:00 a.m. German preliminary gross domestic product quarterly data
5:30 a.m. Bank of England to release its quarterly Inflation report and Governor Mark Carney will hold a press conference
8:30 a.m. U.S. retail sales
6:45 p.m. New Zealand retail sales

May 13 will bring the three trading themes outlined earlier by our Vice President of Research and Analysis, Dean Popplewell. Concerns about China’s economic slowdown, European optimism, and a disappointing U.S. first quarter. The market will address them as they are released. The final say, and probably the most impactful one, will be if the U.S. retail sales number starts casting doubts about the “transitory” nature of the first quarter malaise. If it proves to be more permanent, it will force the Federal Reserve to hold off on making its first rate hike in years. And that will put downward pressure on the dollar.

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