FXTM information and reviews
OctaFX information and reviews
XM information and reviews
FXCC information and reviews
FxPro information and reviews
HFM information and reviews

US retail sales in sight as Fed prepares for action

17 November 2020

America’s latest retail sales data will hit the markets at 13:30 GMT Tuesday, and investors will look for clues on whether the Fed will pull the easing trigger again in December. With US infections spiraling out of control lately, Congress locked in a stalemate over more fiscal relief, and longer-dated US bond yields rising after the vaccine news, the Fed may frankly have no choice. As for the dollar, all this may imply some pain, but the upside in euro/dollar looks capped for now.

Economy still fine, but for how long?

Simply looking at US economic data, one could conclude the recovery is humming along nicely. The jobs market continues to heal, inflation is running at a decent clip, and consumption has bounced back in a powerful manner. What’s more, the latest PMIs suggest businesses are wildly optimistic about the future, pinning their hopes on a vaccine ending the pandemic next year and additional stimulus supporting the economy in the meantime.

Alas, everything is not rosy. US infections have exploded lately, forcing several states to impose tougher restrictions on social life so that healthcare systems are not completely overwhelmed. More states are expected to follow soon given how rapidly infections are rising, which will inevitably hit growth.

The other risk is the lack of a new round of massive fiscal stimulus now that Congress will likely stay divided. While a new package is not entirely out of the question, the Republican-controlled Senate has played down expectations for anything big. Markets have neglected this hazard, yet the Fed hasn’t, with policymakers constantly calling for more government support. A vaccine may be coming, but the economy still has to get through the winter.

Retail sales expected to confirm slowdown

In October, retail sales are projected to have risen by 0.5% on a monthly basis, much slower than the 1.9% recorded in September. The retail control group, which excludes volatile items and is used in GDP calculations, is expected to encounter a similar slowdown.

To be clear, retail sales tend to be very volatile from month to month, and one shouldn’t attach much weight on a single data point. Having said that, this slowdown is not encouraging, and if the numbers fall short of the already low expectations, it would simply be another element arguing for more Fed action soon.

What might the Fed do?

Adding everything up, the Fed may be forced to do more in December despite the encouraging vaccine news. Frankly, the latest spike higher in US bond yields will be concerning for the Fed, even if it was caused by ‘healthy’ factors. Rising yields essentially means that borrowing costs increase on things like mortgages, which could slow the recovery. Hence, the Fed wants the yields on US bonds as low as possible.

There are two potential avenues for policymakers to drag yields back down: either the Fed simply buys more bonds through its QE program, pushing the yields on those bonds down, or it launches another ‘Operation Twist’ like in 2011. This is when the Fed shifted its bond holdings towards longer-dated maturities, to push longer-term borrowing costs lower.

What’s the outlook for the dollar?

As for the dollar, all this spells some downside risks. If markets sense that more Fed liquidity is on the menu, the currency might naturally take a hit. There are also foreign events to consider, for instance a potential Brexit deal propelling the pound and euro higher, at the dollar’s expense.

But while the risks have increased, none of this is a game-changer either. Unless the US goes into a full national lockdown when Biden takes over in January, it is difficult to envision any of these really sinking the dollar, especially considering that the ECB has been defending the $1.20 level in euro/dollar with a passion lately.

The ECB doesn’t want a much stronger euro, so whenever euro/dollar climbs towards $1.20, the central bank usually tries to ‘talk it down’. Therefore, while the dollar may feel some heat, the downside looks somewhat limited here.

Taking a technical look at euro/dollar, initial resistance to any further advances may be found near 1.1870, where an upside break could open the door for the 1.1915 zone. On the downside, immediate support might come from the 1.1785 area, before the focus turns towards the 1.1755 region.


Share: Tweet this or Share on Facebook


Gold traders appear hesitant
Gold traders appear hesitant

Gold finally broke out of the consolidation after being range bound for nearly 11 days. The correction to the downside was expected as gold traded in the overbought territory...

3 Feb 2023

Do safe haven currencies still exist?
Do safe haven currencies still exist?

At the end of last year, Swiss National Bank (SNB) President Thomas Jordan told news media that both the Swiss franc and the US dollar could be considered safe havens...

3 Feb 2023

USD Index appears bid and approaches 102.00 ahead of Payrolls
USD Index appears bid and approaches 102.00 ahead of Payrolls

The index looks to extend the post-ECB rebound. January Nonfarm Payrolls will take centre stage later. Other key data includes the ISM Non-Manufacturing...

3 Feb 2023

USD Index appears depressed post-Fed, breaches 101.00
USD Index appears depressed post-Fed, breaches 101.00

The index drops to 10-month lows near 100.80. The dollar remains on the defensive post-FOMC event. Initial Claims, Factory Orders next of note in the docket...

2 Feb 2023

Can The GER40 Keep Its Strength?
Can The GER40 Keep Its Strength?

As attention turns to the approaching Fed and ECB announcements, the GER40 index maintains stability near its best level since September last year...

2 Feb 2023

XAG/USD consolidates around 200-hour SMA, just above mid-$23.00s
XAG/USD consolidates around 200-hour SMA, just above mid-$23.00s

Silver stalls the overnight recovery move near the $23.70-80 support breakpoint. The technical setup warrants some caution before placing fresh directional bets...

1 Feb 2023

Editors' Picks

FXCM information and reviews
ActivTrades information and reviews
RoboForex information and reviews
MultiBank Group information and reviews
MultiBank Group
Libertex information and reviews
Vantage information and reviews

© 2006-2023 Forex-Ratings.com

The usage of this website constitutes acceptance of the following legal information.
Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website (reviews, brokers' news, comments, analysis, quotes, forecasts or other information materials provided by Forex Ratings, as well as information provided by the partners), including graphical information about the forex companies, brokers and dealing desks, is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Forex Ratings shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about the forex companies. The entire responsibility for the contents rests with the commentators. Reprint of the materials is available only with the permission of the editorial staff.
We use cookies to improve your experience and to make your stay with us more comfortable. By using Forex-Ratings.com website you agree to the cookies policy.