In an overall eventful week for the US, retail sales figures for May are due out of the country on Thursday at 1230 GMT and are anticipated to attract market participants’ attention.
Retail sales are expected to grow by 0.4% m/m in May, double April’s growth rate. Meanwhile, the measure of sales that excludes automobiles – core retail sales – is projected to expand by 0.5% on a monthly basis, after rising by 0.3% in April.
The US economy is largely driven by consumer spending which accounts for more than two-thirds of the economic pie. Retail sales are far from the best consumption indicator but are still viewed as a proxy of some sorts for consumer spending, something which perhaps increases their significance in investors’ minds. Robust retail sales numbers are also likely to add steam to views for the delivery of four quarter percentage point rate increases in total for 2018 by the US central bank. Three such hikes are fully priced in during 2018, while a more than 20% probability for a fourth move is discounted by market participants at the moment.
In FX markets, an upbeat release is likely to boost the dollar relative to other currencies. Focusing on USDJPY, a rising pair could meet resistance around the 61.8% Fibonacci retracement level of the November 6 to March 26 downleg at 110.84. The area round this mark encapsulates the 111 handle, while May 21’s five-month high of 111.39 lies not far above and may act as an additional barrier to stronger bullish movement. Conversely, weaker-than-projected numbers are expected to spur dollar selling, pushing dollar/yen lower. The region around the current level of the 200-day moving average at 110.21 that also includes the 110 round figure might provide support, with the areas to be eyed in case of steeper losses being those around the 50% Fibonacci mark (109.63) and the 50-day MA (109.06).
Other data that will be made public out of the US at the same time as retail sales numbers are weekly jobless claims data, as well as the figures on May’s import and export prices. The big event for the greenback though will be taking place later on Wednesday (1800 GMT) when the Federal Reserve concludes its meeting on monetary policy; market reaction is likely to challenge the aforementioned support/resistance levels. The central bank is widely anticipated to deliver its second 25bps rate increase of the year, with the focus turning on whether policymakers see four total increases in 2018 or whether they will stick to the three previously projected. Fed chair Jerome Powell’s news conference is due at 1830 GMT; his comments have the capacity to move markets significantly.
Wrapping up the week in terms of important US releases will be industrial (and manufacturing) production data for May, as well as the University of Michigan’s preliminary survey on consumer sentiment for the month of June; both data points are due on Friday. In the meantime, during Friday’s Asian session the Bank of Japan will be concluding its own meeting on monetary policy. Lastly, the US-China trade spat may receive a new chapter if the US goes ahead and releases a list of $50 billion of Chinese goods that will be subject to another 25% tariff for alleged intellectual property violations by June 15; the yen is likely to receive safe-haven flows in case of escalating tensions.
