US Advance Retail Sales (MAR) (12:30 GMT; 08:30 EDT)
Expected: 0.1%
Previous: -0.6%

Retail Sales Ex Autos (MAR) (12:30 GMT; 08:30 EDT)
Expected: 0.2%
Previous: -0.2%

What Are the Markets Facing?

US economic data is expected to show that Advance Retail Sales rose 0.1 percent in March after plunging 0.6 percent during the month prior, but given the current economic scenario, this figure could prove to be disappointing. Indeed, consumer confidence is rapidly deteriorating and energy prices continue to skyrocket. During the month of March, the University of Michigan consumer confidence survey plunged to a 26-year low of 63.2 from 69.5 while the Conference Board’s measure dipped down to a 5-year low of 64.5 from 76.4 on a gloomy combination of jittery financial markets, a collapsing housing sector, and oil rocketing to record highs above $110/bbl. There is little doubt that retailers are 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. Furthermore, labor market conditions are deteriorating rapidly, as non-farm payrolls fell negative for the third consecutive month by 80,000, marking the sharpest loss in five years. Overall, there is potential for the Advance Retail Sales index to actually fall negative given the sour spending environment, especially since retailers like Gap, Kohl’s, and JC Penney all reported sharp drops in same-store sales in March. If this retail sales report does prove to be stronger than expected, it will likely be purely the result of inflation, namely, sales at fuel stations, as average gas prices rose above $4/gallon.

Bonds – 10-Year Treasury Note Futures

Treasuries continue to consolidate within range, but the contract may ultimately test trendline support at 115-30. However, upcoming event risk for Treasuries includes the release of the US retail sales report, and if the release indicates that the Committee will be quick to cut rates again at the end of the month, the contract may spike higher. On the other hand, a surprisingly strong headline reading with the help of gas receipts could weigh Treasuries down.

FX – EUR/USD

The EUR/USD pair continues to consolidate within an ascending triangle, suggesting some potential for a break higher to test at least 1.60. This particular consolidation period could last for weeks or months, but in the near term, the US dollar could continue falling lower as Advance Retail Sales may prove to be disappointing given the weak same-store sales performance of firms like JC Penney and Gap. On the other hand, the headline reading could appear to be strong on the back of gas receipts, as average prices jumped above $4/gallon during the month. Currently, fed fund futures are fully pricing in a 25bp cut to 2.00 percent on April 30 and a 40 percent chance of a 50bp reduction. If retail sales prove to be weaker than estimated, the markets may ramp up their expectations of a 50bp cut, which could help push EUR/USD up toward the record highs near 1.5900 once again. On the other hand, a surprisingly strong release could weigh EUR/USD down toward 1.5750.

Equities – Dow Jones Industrial Average

The Dow Jones Industrial Average has finally broken out of its tight range and below trendline support at the psychologically important 12,500 level. Indeed, the long-term trend remains to the downside, and the collapse of the DJIA on Friday only underpins this bias. Risk trends will remain the biggest driver of day-to-day price action, but the upcoming release of the US retail sales report could weigh the DJIA toward 12,175, as the data will likely indicate that consumption is slowing markedly.

Terri Belkas is a Currency Strategist at FXCM.