Ugly US Retail Sales to throw the USD some support?

The FX market went back to neutral today after the weekend furor over the Spanish bank But perhaps weak US data will bring the USD more lasting support.

Today was all about pretending that Monday and Tuesday didn’t happen it seems, as we started the day effectively where we closed the day Friday. While the normal pro-risk currencies remained relatively bid today, the normal correlations with other important markets did not behave according to plan, as the EURUSD shrugged off Spanish and Italian yields remaining near the highest levels for the cycle and the Bundesbank rejection late yesterday of the banking union idea that has been circulating of late. Equities weren’t particularly enthusiastic in today’s European session either.

Then we had a poor retail sales report out of the US that should add to the risk negative outlook, yet the market is hardly moving at all – all in all a head-scratcher of a day for the market, which is perhaps more interested in waiting for this weekend’s Greek election and the FOMC meeting next Wednesday. On the latter note, the USD tried to edge a bit weaker on the far side of the weak US data, where there may be an element of seeing the data as tilting the FOMC toward a stronger easing message. Then again, as the USD is exchangeable with “liquidity” it’s hard to see the USD moving in the opposite direction of risk for any length of time until this market paradigm changes. Anyone care to place a bet on that?

Chart: EURUSD
Looking at an hourly EURUSD chart, the 1.2450 support area is fairly clear to see. A break below there sets up a possible test of the cycle lows – meanwhile today’s reversal is already interesting as a possible more tactical bearish reversal if we can get back toward 1.2500 by the close today. Stay tuned.

US Data
The US Retail Sales data was very weak indeed, with the April revision of the “less Autos and Gas” from +0.1% to -0.1% and the negative surprise for May (-0.1% vs. +0.4% expected) adding up to an aggregate surprise of -0.7%. This could be from some demand having been pulled forward in the strong late winter months by mild weather, but it’s weak data nonetheless. The headline PPI is screaming lower on lower raw material costs and the core is easing very slowly lower as well.

Looking ahead
It’s too early to draw conclusions in the shortest term from today’s market action. The action yesterday and so far today has certainly so far neutralized what appeared to be a very Euro- and risk-negative initial reaction off the weekend’s Spanish bailout. This keeps us in limbo until further notice – we need to get an ugly close today in equities and pro-risk currencies to believe the USD upside trades are back on tactically. Bonds are rallying very sharply as of this writing – which could be a lead-in to such a close – stay tuned.

More strategically, the USD uptrend is still intact, but we need to get an exclamation point reversal here soon for confirmation that this consolidation phase is over and done with. The next five trading days are critical for that.
Look out for the RBNZ announcement later today (early Thursday for those fortunate enough to live in beautiful New Zealand.) as I discussed this morning – I don’t expect much, which could see the NZD pivot weaker vs. the USD if risk appetite weakens again, but stronger against the Aussie, which remains the high beta currency in terms of rate expectations and sensitivity to risk.

We also have a BoJ meeting on Friday, but there will be perhaps little news of note after the new announcements from the last meeting and considering the considerable easing of the pressure on the JPY over the last couple of weeks (i.e., if we are still risk off after that meeting and the BoJ does little, we could be soon testing the recent lows in the JPY crosses again.)

Economic Data Highlights

• Australia Jun. Westpac Consumer Confidence rose to 95.6 vs. 95.3 in May
• Switzerland May Producer and Import Prices out at -0.2% MoM and -2.3% YoY vs. -0.1%/-2.0% expected, respectively and vs. -2.3% YoY in Apr.
• Euro Zone Apr. Industrial Production out at -0.8% MoM and -2.3% YoY vs. -1.2%/-2.7% expected, respectively and vs. -1.5% YoY in Mar.
• US May Producer Price Index out at -1.0% MoM and +0.7% YoY vs. -0.6%/+1.2% expected, respectively and vs. +1.9% YoY in Apr.
• US May PPI ex Food and Energy out at +0.2% MoM and +2.7% YoY vs. +0.2%/+2.8% expected, respectively and vs. +2.7% YoY in Apr.
• US May Advance Retail Sales out at -0.2% MoM and less Autos and Gas at -0.1% MoM vs. -0.2%/+0.4% expected, respectively

Upcoming Economic Calendar Highlights (all times GMT)

• US Apr. Business Inventories (1400)
• US Weekly DoE Crude Oil and Product Inventories (1430)
• New Zealand RBNZ Official Cash Rate (2100)