USD Preview: US retail sales data, March

Concerns on the strength of the US Dollar’s rally seem to be fast fading as the markets seem to be in a hurry to forget the March jobs numbers. However, this week will see a lot of US economic data, starting with today’s big test of the retail sales numbers. It is often considered to be an early indicator for inflation and also the spending power which reflects on the labor market as well. Better job market is usually seen as a reason behind rising retail sales numbers. Furthermore, retail sales in the past three months has remained largely negative, muting all the talks about the slump in Oil prices offering more money to spend for US consumers.

Since January, retail sales have been negative, printing -1%, -0.9% and -0.1% respectively (December, January and February data).

Heading into today’s US trading session, markets are expecting to see retail sales pick up 0.7% on the core and 1.1% on the headline, quite a high bar in terms of expectations.

If weather indeed played a spoilsport for the US labor markets, then it could very well be possible that the weather could also be a reason for a slump in retail sales. However, the general consensus amongst economists who were polled seems to be otherwise.

A miss in the expectations however could be tricky to understand how the markets would react. For one, the weather could yet again be blamed for the slump, but on the other hand, if retail sales do manage to beat estimates, then it leaves a rather big question as to what exactly is happening with the jobs report.

Besides the retail sales, other economic data from the US includes the Philly Fed Manufacturing index and the monthly CPI data. Although the Federal Reserve prefers the PCE numbers, the CPI data regardless does manage to move the markets. Of importance will be if CPI on a yearly basis continues to move to the upside.

Last month’s numbers showed Core CPI excluding food and energy prices rising 1.7%, which was seen by the markets as a turnaround in the US inflation. If CPI data manages to stay above estimates or at the very least, remain stable from last month’s numbers, the markets could very well view this as a positive for the Fed rate hike.

The US Dollar Index, which earlier saw a rejection at the psychological barrier of 100, and promptly fell to the lows of 96.5 over the weeks following the March FOMC meeting. In the process, the Dollar index formed a double bottom which technically will see the Greenback rally much higher.

Yesterday, price action made a brief test back to the 100 level only to be rejected, as the Buck tries to establish a short term support. Failure to find support will see the previous low at 99.55 come under threat which upon breaking could see the Dollar Index decline down to the next main support at 98.95. At the time of writing, the US Dollar index is showing signs of a lift off just above the previous low at 99.55, so it would be interesting to see how the US Dollar Index will be trading ahead of the retail sales data today.