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US Retail Sales: 16 April US Dollar Trading Analysis
16/04/2018
US Retail Sales: 16 April US Dollar Trading Analysis

US Retail sales headlines Monday’s trading session. The figures are seen as an important indicator for investors, as consumer spending is tightly linked with the general health of the U.S economy. This 16 April US Dollar Trading Analysis shows how the greenback trades ahead of March retail sales figures.

16 April, Swissquote – The US dollar edged lower against most G10 currencies on Monday morning as traders eye March retail sales figures, which are due for release later this afternoon.

US Retail Sales: 16 April US Dollar Trading Analysis

On the other hand, the greenback back extended gains against most emerging market currencies after India was added to the US Treasury’s monitoring list for currency manipulation. The decision triggered a small sell-off in the region’s currencies amid fears the US could add more country in that list.

In addition, the Syrian situation has lowered traders’ risk appetite. The Indian rupee fell 0.34% against the buck, the South Korean won slid 0.39%, while the Indonesian rupiah was down 0.20%. After contracting 0.1%m/m in February, headline retail sales are expected to bounce back 0.4%m/m in March as economists anticipate that Trump’s tax cuts will jump-start consumption.

It must be noted that the economic environment has been supportive of falling unemployment rate, rising (modestly) wage and solid economic growth. However, after three consecutive months of contraction, another disappointing reading could only send the dollar lower.

Fade Sterling Optimism

In our view, GBPUSD rally to 1.4280 is more a function of USD weakness them purely confidence in the UK. We remain slightly bearish on the outlook for the sterling. Despite general optimism driven by the positive progress in Brexit talks, driven by a failure of economic recession post-Brexit predictions to materialize and strength of trading partners, the UK is in a fragile place.

There is increasing evidence of a global slowdown which will manifest itself in weaker UK growth and inflation. This will also decelerate BoE interest rate expectations providing USD will sustain yield differential and rotating investors back into USD from GBP.

Complex trade talks

Finally, increased focus on complex trade talks, led by US / China, will likely push Brussels into a tougher stance on UK relations. “Breakthroughs” will become hard and harder to achieve. We think the market was muted in pricing in proposals for a border between the Republic and Northern Ireland.

Given the complexity of the issue both from a Brexit economic standpoint and social/political we should have seen higher GBP volatility.

In regards to Brexit, investors have clearly been conditioned to ignore short-term hype. Hence the lack of movement. UK-EU must avoid a hard border of extensive custom checks. Republic and Northern Ireland will plague negotiations moving forward. This is one of those convergence issues that make the UK-EU relationship so difficult to unwind.

Disclaimer

This article  US Retail Sales: 16 April US Dollar Trading Analysis was written by Arnaud Masset & Peter Rosenstreich, analysts at Swissquote. While every effort has been made to ensure that the data quoted and used for the research behind this document is reliable, there is no guarantee that it is correct, and Swissquote Bank and its subsidiaries can accept no liability whatsoever in respect of any errors or omissions, or regarding the accuracy, completeness or reliability of the information contained herein.

This document does not constitute a recommendation to sell and/or buy any financial products and is not to be considered as a solicitation and/or an offer to enter into any transaction. This document is a piece of economic research and is not intended to constitute investment advice, nor to solicit dealing in securities or any other kind of investments.

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