MAY 13 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. While this would not necessarily signal that consumption is on track to keep the US economy afloat, the pure positive surprise factor would be enough to spark bullish sentiment in the markets.

Bonds – 10-Year Treasury Note Futures

A daily chart of Treasuries shows the contract holding above intraday support at 116, but failing to push much closer to near-term resistance at the confluence of the 100 SMA and 38.2 percent fib near 116-20. Looking ahead to Tuesday’s retail sales report, spending is forecasted to slump, which would 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

The EUR/USD decline from the record highs just above 1.60 has bounced from the 38.2 percent fib of 1.4437 – 1.6018 at 1.5415, and while immediate resistance looms at 1.5563, there are signs the pair will climb higher. First, looking at the most recent COT report, the bearish extreme in the euro has been realized as the 52 and 13 weeks indexes are at 2 and 8 after holding at 0 last week, which has bullish implication for EUR/USD. Furthermore, according to Technical Strategist Jamie Saettele’s Top Currency Trading Ideas, “current market psychology…is suggestive of a short term bottom in the EURUSD. Recent newspaper headlines include “Steady Dollar Tempers Allure of Some Bets” (WSJ, 5/12) and “A Signal from Fed Could Aid Dollar Rally” (Online WSJ, 5/12). The first headline demonstrates complacency and the second, a media prognostication, is typical of an impending low in the EURUSD. In other words, once the media catches on, get out or even go the other way.” If this is indeed the case, the release of US Advance Retail Sales may only help to accelerate EUR/USD gains, as the index is forecasted to fall negative. On the other hand, if the index shows a surprising gain, EUR/USD could pull back toward 1.55.

Equities – Dow Jones Industrial Average

After making a decisive turn from the 200 SMA at 13,050, the Dow Jones Industrial Average dropped down for a test of former resistance near 12,740/50 on Friday. While this level has provided support thus far, price action for the DJIA may turn increasingly bearish. Indeed, 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 the 38.2 percent fib of the March – May rally near 12,600. 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.