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Weak Job Growth Does Not Always Equal Weak Retail Sales
The biggest event risk for the US dollar this week will be the April
retail sales report. Since hitting a record low against the Euro the
middle of last month, the greenback has strengthened significantly.
However as the market finally latches onto the recent strength of the
dollar, we are actually beginning to see a shift in its trend. Since
Thursday, the EUR/USD has already climbed over 250 pips from 1.5280 to
1.5530. The degree of consumer spending last month will play a major role in determining whether the recovery in the US dollar is over. Weak Job Growth Does Not Always Equal Weak Retail Sales The US economy has lost jobs for 4 months in a row , leading
everyone to believe that consumer spending will contract. In fact that
there are MANY reasons to believe that retail sales decreased in April including the following: *Although higher gas and food prices also boosts the value of consumer spending, it could negatively affect spending volume. However there are also many reasons to believe that retail sales may not be extraordinarily weak: According to Ken Perkins of Retail Metrics Inc, April was the best
month for retailers since November. I am skeptical about consumer
spending because excluding cars and gasoline, consumer consumption
should remain weak. However with just as many reasons for retail sales
to rise than fall, a contraction in spending may not be a given. Don’t forget that in October 2001, when non-farm payrolls dropped
325k, retail sales actually jumped 6.6 percent. Retail sales can be
very volatile on a month to month basis. The bigger question for currency traders is whether a surprise in
retail sales will matter for the US dollar. With Fed fund futures
pricing in an 86 percent probability that interest rates will remain
unchanged at the end of June, the market is convinced that the Federal
Reserve will shift its focus away from growth and onto inflation by
pausing. Weak consumer spending is also very much discounted by the markets
given the recent trend in the US economy, which means that it may not
be much a surprise. However exceptionally strong numbers would on both
a volume and value level validate the central bank’s decision to take a
break from cutting interest rates and would put us closer to the end of
the Fed’s easing cycle. by Kathy Lien (Kathy Lien) Disclaimer: Please note that charts and commentary provided by the moderator are for educational purposes only. Any trades placed upon reliance on the moderator’s charts or information is taken at your own risk for your own account. Past performance is no guarantee of future results. While there is great potential for reward trading stocks, futures and options, there is also substantial risk of loss and you must decide your own suitability to trade. Future trading results can never be guaranteed. This is not an offer to buy or sell stock, futures, options or commodity interests. Most trading systems are based on historical formulas which have worked in the past. However, what has happened before may or may not happen again. You can lose all your money trading stocks, futures, and options and you must decide your own suitability as to whether or not to trade. Only trade with true risk capital you can afford to lose. Only trade markets you can properly afford to trade. Properly funded trading accounts typically perform better than those that are not. Never risk more than 2-3% of your account on any one trade. Always define your risk before entering a trade and place a stop to limit your risk. There are no guarantees or certainties in trading. Trading involves hard work, risk, discipline and the ability to follow rules and trade through any tough periods during a system’s draw downs. If you are looking for a guarantee, trading is probably not for you. Most people lose money trading. One of the reasons is that they lack discipline and are unable to be consistent. A system can help you become consistent. Ironically, worrying about the monetary aspect of trading can contribute to and cause a trader to make trading errors. Therefore, it is important to only trade with true risk capital. |
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