Trading the News: U.S. Advance Retail Sales

What’s Expected
Time of release: 10/15/2008 12:30 GMT, 08:30 ET
Primary Pair Impact : EUR/USD
Expected: -0.7%
Previous: -0.3%

How To Trade This Event Risk

The economic downturn in the U.S. may only get worse as economists project retail spending drop another 0.7% after falling 0.3% in August. In fact, the final GDP reading for the second quarter was revised lower to 2.8% from a preliminary reading of 3.3%, indicating that the economy is slowing at a faster pace than initial expected. Furthermore, durable goods orders plunged 4.5% in August amid projections for 1.9% gain, and was followed by a decline in automotive demands as domestic vehicle sales slipped to 9.6M from 10.4M in August. In addition, chain-store sales for the same period cooled to 1.0% from 1.7%, and conditions may only get worse as employment demands continue to falter. The word’s largest economy lost jobs for the ninth consecutive month as non-farm payrolls fell 159K in September, while the four-week moving average of initial jobless claims rose to 482,500, reaching its highest level since 2001. Fading employment demands paired with the ongoing turmoil in the housing and credit sector suggests that economic activity may remain subdued for the rest of the year, and growth concerns for the global economy have certainly increased as the U.S. financial crisis spreads throughout the world market. Just last week, the FOMC, along with the major central banks around the world, lowered their respective benchmark interest rate to ease market turmoil, but the lack of improvement suggests that the Fed will look to ease policy further as growth prospects deteriorate.

Trading the given event risk may not be as clear cut as some of our other trades due to increased volatility in the markets, but an improved sales reading should help to brighten the growth outlook, which could help to spur bullish sentiment for the US dollar. As a result, an unexpected gain in retail spending would favor a short EUR/USD trade, and we will look for a red, five-minute candle to trigger an entry on two lots of the EUR/USD. Our initial stop will be placed at the nearby swing (or a reasonable distance), and this risk will determine our first target. Our second target will be based purely on discretion, and we will move the stop on the second lot when the first half of the trade reaches its target in order to preserve our profit.

Conversely, the lack of recovery in the economy suggests that consumers will continue to cutback on spending, which would only generate a bearish outlook for the greenback. Consequently, a fall in spending would generate a long EUR/USD trade, and we will follow the same strategy as the short trade listed above, just in reverse.

Jamie Saettele is a Technical Currency Analyst for FXCM.