💲 Dollar loses ahead of retail sales

For the past two months, we have observed rather weak consumer behavior when looking at retail sales data. On the other hand, the rebound in wage dynamics should contribute to a revival in retail sales. Additionally, higher-frequency data suggests that car sales and sales at gas stations have rebounded, but sales in other categories may be mixed.

Expectations:

• Retail sales for April are expected to increase by 0.8% MoM (compared to the previous reading of -0.6% MoM, revised from -1.0% MoM).
• Excluding car sales, retail sales are expected to increase by 0.4% MoM (compared to the previous reading of -0.4% MoM, revised from -0.8% MoM).
• Excluding car sales and fuel, retail sales are expected to increase by 0.2% MoM (compared to the previous reading of -0.3% MoM).

Retail sales are likely to rebound significantly, considering the sales of smaller new cars in April at a level of 15.9 million, compared to 14.8 million in March. Additionally, fuel prices have increased by about 3.0% MoM, which would result in increased sales value even with a maintained nominal quantity of gasoline purchased. However, the monthly price increases (also visible in the case of cars) reduce consumers' available funds for other expenses, which may indicate weakness in the overall GDP report for the second quarter of this year. Currently, Bloomberg estimates that the growth in Q2 was 1.5% at an annualized rate. The GDPNow model from the Atlanta Fed currently estimates 2.7%, indicating that consumer behavior in economic growth data will be crucial.

Nominal retail sales no longer appear as positive when looking at the retreat from recent peaks. Additionally, we observe very weak sales in real terms, indicating that consumers are facing increasing problems.

How might EURUSD behave?

The weakness of the dollar accelerated during the European session, although the EURUSD pair remained in a fairly strong downtrend sequence following the Fed's decision to raise interest rates on 3th May. A strong reading could prompt the Fed to consider another rate hike or at least maintain interest rates unchanged for a longer period. However, if the data were to show that consumers are increasingly struggling with less available cash for purchases (due to high prices), it would be a negative sign for the dollar, potentially breaking the downtrend line and approaching the 50.0% retracement level of the major downtrend. Only a break above 1.0940 would indicate an exit from the downtrend sequence.

Source: xStation5