Advance Retail Sales (NOV) (13:30 GMT; 08:30 EST)
Expected: 0.6%
Previous: 0.2%

Retail Sales Ex Autos (NOV) (13:30 GMT; 08:30 EST)
Expected: 0.6%
Previous: 0.2%

How Will The Markets React?

US economic data is expected to show that Advance Retail Sales actually improved in November amidst heavy discounting and promotions. The retail sales index is estimated to gain 0.6 percent during the month from 0.2 percent, despite rapidly deteriorating consumer confidence and rising energy prices. Indeed, the Conference Board's consumer confidence index plunged to a two year low of 87.3 during the month of November from 95.2 in October on a gloomy combination of jittery financial markets, a collapsing housing sector, and oil rocketing to record highs above $98/bbl. Nevertheless, heavy traffic on Black Friday helped fuel sales growth for discount stores like Wal-Mart, department stores like Macy’s Inc., and upscale retailers like Nordstrom Inc. and Saks Inc. However, many stores reported that sales tapered off quite a bit thereafter, so much so that Target Inc. warned that it may miss Q4 earnings forecasts if sales don’t improve significantly in December. With shoppers likely to be looking for the cheapest bargain out there this holiday season, retailers may be contending with difficult circumstances as they are forced to offer the biggest discounts possible in order to draw customers, which will negatively impact profit margins. Nevertheless, a strong November retail sales report could ignite a bid for the greenback and the Dow on Thursday, though it may be brief as traders grapple with the implications of the FOMC’s 25bp cut and policy statement that essentially left all options open going forward.

Bonds – 10-Year Treasury Note Futures

Treasuries surged on Tuesday following the FOMC rate decision, though the contracts ran into support at 113-26. However, Treasuries could pull back in coming days as US data may suggest that there will be no need for the bank to cut rates again in January. Immediate support is at 113-03, followed by 112-14. However, if the Dow continues to get slammed, Treasuries could continue to climb towards the highs at 114-10.

FX – EUR/USD

EUR/USD has continued to hold above trendline support, though the pair has started to feel some pressure as the FOMC’s 25bp cut and neutral policy statement actually led the greenback gain. Indeed, near-term support looms at 1.4650, but a break below the more critical 1.4600 level will be bad news for those still holding onto long EUR/USD positions. Furthermore, DailyFX Technical Strategist Jamie Saettele pointed out a head and shoulders pattern in the EUR/USD on Tuesday, which could have bearish implications. Indeed, US retail sales are expected to have improved in November, and with the neckline of the formation sitting at 1.4520, data could weigh on EUR/USD and take the pair down towards 1.4300.

Equities – Dow Jones Industrial Average

As we forecasted in the forums, the Dow gained throughout Tuesday morning only to tumble later in the day as the FOMC cut rates by 25bp and issued a remarkably neutral bias. Additional losses could be in store for the index if the markets judge that the central bank may not come to the rescue with additional rate cuts in January. On Thursday, US retail sales are expected to improve, which may boost forecasts for December spending amidst heavy discounting during the holiday season. While this could actually provide the Dow with a bit of a boost, the index could continue to rack up losses if the overwhelming concern remains on the credit crunch. Support looms below at the 200 SMA at 13,280.

Terri Belkas is a Currency Strategist at FXCM.