8:30am (NY Time) US Core Retail Sales Forecast 0.0% Previous -1.1%
ACTION: USD/JPY BUY 0.6% SELL -0.6%
Since we have both Retail Sales (Headline and Core, also known as ex auto) scheduled to be released at the same time, we should concentrate on the Core Release as it’s a better picture of the retail activities. However, it’s important to make sure there is no conflict between both releases or we should just stay out of the market until a new direction has been established.
The plan to trade this release is straight forward. We are going to wait for 0.6% of release or better to BUY USD/JPY (sell JPY), or a -0.6% or worse to SELL USD/JPY (buy JPY)… If we get a in-between release, we’ll need to look at the pre-release market condition in order to make a decision, or just stay out of the market altogether.
Current market condition is somewhat driven by risk appetite as result of the postive Greek debt offering today and the surprise resilience of inflationary pressure in UK. Today’s overall market is characterized with a strong demand for risk assets including all major commodity currencies… With that being said, having a strong Core Retail Sales reading will surely push current risk appetite sentiment to the next level, but a worse reading may add to the sell-offs on USD (against JPY) and curb risk appetite sentiment.
With the current high unemployment rate and the dismal NFP readings in June, Retail Sales probably dropped to a worse than expected level. Auto sales reported by 2 of the largest automakers, Ford and GM, showed lower than expected demand, which will probably keep the headline Retail number low as well… Retail sales reported by Target and GAP Inc. were also lower than forecasted, and these two retail giants sales activities were probably typical for the entire Retail sector in the U.S.
Therefore, market could be looking for a worse than expected release, we may even see some early sentiment moves attempting to price in this release ahead. If we get a surprise better than expected release, we should see a strong weakness in the JPY, which should give us a great trade on LONG USD/JPY. If we get a worse than expected release, JPY should strengthen and may push beyond the 88.00 level and retest the 87.00. Of course instead of trading USD/JPY, you could trade other pairs such as GBP/JPY or AUD/JPY, both pairs should move parallel to USD/JPY but may provide more profits.
“(Retail Sales Core) Derivative of Retail Sales that excludes the Automobile Sales component. Automobile Sales make up roughly 25% of Retail Sales, but they can be very volatile from month to month and can distort the picture. Retail Sales with the exclusion of this volatile component is thought to be a better indicator of the underlying trend in consumer spending.”
Here is one of my previous trade on US Core Retail Sales: