US Advance Retail Sales (APR) (12:30 GMT; 08:30 EDT)
Expected: -0.2%
Previous: 0.2%

Retail Sales Ex Autos (APR) (12:30 GMT; 08:30 EDT)
Expected: 0.2%
Previous: 0.1%

What Are The Markets Facing?

Advance Retail Sales are expected to fall back 0.2 percent after showing a surprising 0.2 percent gain during the month prior, but given the current economic scenario, this figure could prove to be even more disappointing when announced at 8:30 EDT. Indeed, consumer confidence is rapidly deteriorating and energy prices continue to skyrocket. During the month of April, the University of Michigan consumer confidence survey plunged to a 26-year low of 62.6 while the Conference Board’s measure dipped down to a 5-year low of 62.3 on a gloomy combination of jittery financial markets, a collapsing housing sector, and oil rocketing to record highs. 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. However, there is potential for the Advance Retail Sales index to actually show a positive increase as the result of prices, namely, sales at fuel stations. Indeed, this index is not adjusted for inflation and average gas prices rose above $3.50/gallon during the month and have only continued to rise.

Bonds – 10-Year Treasury Note Futures

A daily chart of Treasuries highlights the break above trendline resistance and the subsequent advance toward resistance at the confluence of the 100 SMA and 38.2 percent fib at 116-20. While we are likely to see a test of this resistance level on Monday, Tuesday’s release of US Advance Retail Sales provides significant event risk for the contract. Indeed, retail sales are forecasted to slump, which could support the case for additional Treasury gains. On the other hand, if rocketing gas prices lead the headline retail sales index to deceptively rise, the contract could pull back toward support near 115.

FX - EUR/USD

EUR/USD remains heavy, and our FXCM Speculative Sentiment Index for the pair continues to signal the potential for additional losses. Furthermore, as Technical Strategist Jamie Saettele mentioned in Friday’s Daily Technical Report, “we are bearish as long as price is below 1.5594…An unexpected move above there would cause us to reassess the situation. As it stands now though, we are treating the decline from 1.6018 as a series of 1st and 2nd waves (or A-B-1 and 2 of C). Price has stalled at a trendline this morning and the rally from 1.5283 is in 3 waves to this point.” Furthermore, the 23.6 percent fib of 1.3361 – 1.6018 at 1.5395 continues to provide immediate support. Monday’s price action could push the pair in either direction and Tuesday could prove to be a volatile day, as Advance Retail Sales will be released and are forecasted to contract. In this case, EUR/USD could hold above 1.5400 for just a bit longer, though it appears price will ultimately tumble further. On the other hand, if gas prices lead the index to rise via inflation effects, EUR/USD could pull back for a test of 1.54 and possibly even Thursday’s low of 1.5283.

Equities – Dow Jones Industrial Average

The Dow Jones Industrial Average dropped down for a test of former resistance near 12,740/50 on Friday after turning down from the confluence of an ascending trendline and the 200 SMA at 13,050 last week. Furthermore, according to Technical Strategist Jamie Saettele’s Elliott Wave analysis, “This is evidence of a bear market in its early stages and wave iii of 3 is ready to begin...If so, then a major decline is upon us.” Thus far, this appears to be the case and the next level of substantial support looms below at the confluence of the 100 SMA and a rising trendline at 12,578. Upcoming US data may not play a huge role in price action for the DJIA, as risk trends may become the biggest culprit once again. Indeed, the Federal Reserve’s continued efforts to boost liquidity via the Term Securities Lending Facility and the Term Auction Facility suggests that the credit crunch is far from over. Nevertheless, if US Advance Retail Sales miss expectations, the news could shake up the DJIA, especially if the index plunges and suggest consumer demand is weakening quickly.

Terri Belkas is a Currency Strategist at FXCM.