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Market Analysis

Fundamental Analysis: Mixed Retail Sales and Volatility for the Dollar

March 11, 2019
BY Michael Stark

The dollar has been volatile with overall losses this afternoon so far in the aftermath of data on retail sales from the USA. While January’s figures are much better than expected, the numbers for December have been revised downward significantly.

Euro-dollar has recovered somewhat from last week’s lows to around $1.125. The dollar also declined to around ¥111. Even the pound has bounced somewhat to move back above $1.30.

Retail data weaker overall, but shares in view

Core retail sales for January in the USA increased by 0.9% as announced this afternoon. This is significant because the expectation was 0.4%. On the other hand, the Commerce Department revised its figures for December downward. The initial figure had indicated a contraction of 1.7%, but today -2.1% was the updated figure.

The importance of December’s core retail sales makes this figure a fairly important negative for the dollar. The reason for traders’ study of core retail sales is mainly that this data is most closely related to the part of GDP affected by consumer spending.

Today’s figures come in the context of continuing expectations for slowing growth in the first quarter of 2019 overall. The data today is also important within the framework of the mixed employment data on Friday from the USA. The NFP itself missed expectations by more than 160,000, although strong releases of building permits, hourly earnings and unemployment rate prevented more negativity.

Some of the dollar’s recent volatility is because of shares. The Dow reacted rather poorly to the NFP on Friday and has also taken a hit today from Boeing, which opened over 10% lower. Conversely, both the Nasdaq and S&P 500 are up since Friday’s opening. Rates are another factor beyond the economic calendar. With the ECB and many others likely to remain still for some time, differentials are a strong factor in the dollar’s favor.

Traders watching CPI tomorrow as well as British news

Monthly CPI is the most important release for the dollar tomorrow. Expectations currently point to the figure remaining static at 0.2%. Jerome Powell is also due to speak at the Just Economy conference in Washington, D.C., in the early morning GMT tomorrow. Although it’s unlikely that the Fed’s chair will talk much about rates or today’s data, many traders will nonetheless be studying his remarks.

Thursday’s new home sales and Friday’s JOLTs release round off the week in major American data. The other currency in many USD pairs faces a number of figures this week, though. The most important data from other majors tomorrow is for the pound.

Crucial British data on GDP and manufacturing are due tomorrow at 11.30 GMT. As well as these, Theresa May insists that tomorrow night’s ‘meaningful vote’ in Parliament on her Brexit deal will go ahead. Data and politics then mean that cable is likely to be exceptionally volatile tomorrow.

Small losses on hand for the dollar

Fundamentals on the whole suggest a degree of downside risk for the dollar over the next few days. The pound’s volatility aside, the most likely outcome for the dollar is more small losses in the short term. However, tomorrow’s data has the potential to cause a surprise.

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