Tag: retail sales

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Forex Market Analysis

Australian Dollar Prepares for Interest Rate Decision and Retail Sales Data Ahead

Overview

Overview

Overview

The Australian Dollar will face two high volatility events; the first one corresponds to the interest rate decision, for which the analysts’ consensus foresees a rate cut to 0.1% from the current 0.25%. The second one corresponds to September’s Retail Sales figures, where the consensus expects a recovery. Nevertheless, the price action suggests a new decline before reversing.

Market Sentiment

From a fundamental perspective, the Australian Dollar will have two high volatility events that will drive the next week’s oceanic currency movements.

The first event corresponds to the Interest Rate Decision, which will occur on Monday the 2nd during the overnight session. The analysts’ consensus foresees a reduction from the current rate of 0.25% to 0.10%. 

The last interest rate cut by the Reserve Bank of Australia’s broad members occurred in March 2020, where policymakers decided to cut the reference rate from 0.5% to 0.25%.

The second high impact will occur in the overnight trading session of Tuesday 03rd, where the Australian Bureau of Statistics will release the Retail Sales (MoM) data corresponding to September. The analysts’ consensus foresees a decline to 1.5%. 

Although the analysts’ polled foresee a contraction for September, they expect an improvement in the retail sector after falling 4% in August.

On the market sentiment side, the GBPAUD cross in its daily chart exposes the 90-day high and low range, which reveals the short-term participants’ sentiment. 

The previous chart illustrates the price action moving in an upward sequence that began on September 11th that pushed the cross from the extreme bearish sentiment zone toward the extreme bullish sentiment zone. 

In fact, the 60-day moving average movement below the price confirms the bullish bias that carries the cross. The next supports locates at 1.82688, which corresponds to the extreme bullish sentiment zone support, and 1.81227 corresponds to the 60-day moving average that acts as a dynamic support.

In summary, considering the pessimistic forecasts by the Australian data analysts and the extreme bullish sentiment unveiled in the GBPAUD cross, there exist the possibility of further weakness in the oceanic currency.

Technical Analysis Outlook

The big picture of the GBPAUD cross under the Dow Theory exposed in its 2-week log-scale chart reveals the price is moving mostly sideways since early March 2013, when the price touched its bottom of 1.43811. Once the cross found buyers, the price raised until 2.23722 reached in mid-August 2015. 

Once the March 2015 high was reached, the pair started to correct the Primary trend finding support at 1.57896 in late October 2016. This correction accomplishes the Dow Theory rule that says that the Secondary trend retraces between 33% to 66% of the Primary trend. 

The same situation occurs with the ascending sequence that advances from 1.57896 toward 2.08522 reached in mid-March 2020, which retraces beyond 66% of the previous decline. 

Likewise, the GBPAUD cross started to develop a downward sequence, which found a bottom at 66% of the previous rally. Nevertheless, considering the price and time relationship between the last decline and the previous two movements, we conclude that this decline corresponds to the Minor trend of the Secondary upward trend, which looks incomplete. 

The GBPAUD outlook under the Elliott Wave Theory exposes the progress in a downward five-wave sequence, which advances in its incomplete wave 4 of Minor degree labeled in green. This corrective structural series currently moves in its wave ((a)) of Minute degree identified in black.

Considering the elliott Wave theory, the current wave in progress should develop three internal segments and advance until the zone between 1.86783 to 1.90442, where the cross could find resistance and start its wave ((b)) in black.

Likewise, considering that the third wave of Minor degree is the extended wave, the fifth wave should fail to reach a lower low than the end of the third wave of Minor degree located at 1.74935. Finally, the invalidation level of the bearish scenario is located above 1.95100.

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Forex Course

152. Knowing The Fundamental Factors That Affect The Currency Values

Introduction

Introduction

Introduction

Many fundamental factors affect currency value. Therefore, whether we trade based on technical analysis fundamental analysis, we should know these factors to understand the currency markets.

Important Fundamental Factors That Affect Currency Values

Fundamental factors are economic releases and events that have a direct impact on currency value. If we want to trade based on fundamental analysis, we should focus on these releases and make a decision based on the result. Let’s have a look at the important fundamental factors that affect currency values

Interest Rate

Interest rate is the amount that a central bank charges if anyone takes loans from the bank. Central banks change the interest rate to control the country’s money supply; therefore, it directly affects the currency value.

Inflation Rate

Inflation is the buying power of money. Lower inflation means higher buying power, and higher inflation, the lower buying power.

Consumer Price Index (CPI)

CPI or CPI inflation is the price of consumer needs. Any increase in CPI is bad for the currency, while a decrease in CPI is good for the currency.

Producer Price Index (PPI)

PPI is the price of products or elements of businesses. An increase in PPI means businesses need additional money to buy raw materials that may increase the finish product rate.

Retail Sales

Retail sales indicate the number of products and services bought by consumers. An increase in retail sales indicates higher consumer activity in the market that is good for the currency value.

Foreign Exchange reserve

Foreign exchange reserve is the amount of money that is reserved in the central bank. An increase in foreign reserves is positive for a country’s economy and currency value.

Non-Farm Payroll (NFP)

On the first Friday of every month, US Labor Statistics releases the number of unemployed persons in the USA. As the US dollar is the most used currency globally, any change in NFP affects the overall forex market.

Central Bank Meets

In every quarter, central banks of every country provide an outlook of the domestic and international economy. In this meeting, any hawkish tone creates a positive impact on the currency value, while any dovish tone creates a negative impact on the currency value. We should keep an eye on how central banks are reacting to the central banks meeting to get an outlook of the currency value.

Conclusion

Besides the above-mentioned fundamental factors, there is a political movement, trade natural disaster, etc. also impacts the currency market. Moreover, in an uncertain market condition, no trading strategy works well, whether based on technical or fundamental analysis. Let’s dig deeper into each of these fundamental factors and more interesting aspects in the upcoming lessons. Cheers.

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Forex Daily Topic Forex Fundamental Analysis

Understanding ‘Retail Sales MoM’ Fundamental Forex Driver

Introduction

Introduction

Introduction

The Month-over-Month Retail Sales figures are one of the closely watched statistics in the financial markets and have a lot of volatility in the markets around these figures. An increase in sales is one of the earliest signs of growth for businesses that can imply a multitude of things for the economy. It is a closely watched high impact leading indicator. Hence, an understanding and analysis of Retail Sales are paramount for our fundamental analysis.

What is Retail Sales Month-over-Month?

Retail Sales

In the purest sense, it is just the dollar amount of purchase of goods and services made by end-consumers for a given period. Here, the period is MoM, which stands for Month-over-Month. It is the sale of durable and non-durable goods at the retail outlets to consumers.

It can also be defined as the purchase of finished goods and services by consumers and businesses. The goods and services have reached the end of the supply chain. The chain generally starts with the manufacturer or provider and ens up at the retailer where the general population or other businesses consume it.

The Retail Sales figures are often presented in two ways: including and excluding auto and gas sales. As the Auto (vehicle purchase) figures and Oil prices fluctuate frequently, the exclusion helps to identify the trends better once the volatile components are removed. The excluded version is called the Core Retail Sales report.

Retail Sales statistic covers the in-store (retail) sales, catalog sales, and out-of-store sales of durable (goods that last more than three years) and non-durable goods (that have short-life span). The major categories include:

Retail Stores have the following categories:

How can the Retail Sales MoM numbers be used for analysis?

The Retail Sales figures provide us a reliable measure of CURRENT economic activity. It is essential to an objective assessment of the need for and impact of a broad range of policy decisions. Hence, the policymakers use this statistic to keep a pulse-check on the economy’s health.

The Retail Sales figures are significant statistics for many as the Consumer Spending makes up 66% of the United States Gross Domestic Product. The remainder is from Government Spending, Business Spending, and Net Exports. It is also essential as it represents the end of the supply chain figures. All the statistics that precede the Retail Sales figures like Inventory Changes or Manufacturing Production figures all lead up to the Retail Sales, which confirms and triggers the next wave in the trend change in the other indicators, in a feedback loop.

In other terms, once Retail Sales figures improve, businesses see an increase in their revenue and correspondingly demand their products, which leads to an increase in their Manufacturing Production figures, and that would later translate to Change in Inventory statistics. So, we see how the Retail-Sales figure operates amongst the economic indicators in a feedback loop cyclical pattern.

Once Retail Sales figures improve, businesses see profits that encourage expansionary plans, that would increase investment in their business, employment, or even wage growth. It is necessary to understand, Sales improve business, once business improves, wage growth or employment increase is a possibility. Hence, the Retail Sales figure is an essential leading macroeconomic indicator for our fundamental analysis.

The US Bureau of Economic Analysis releases quarterly GDP statistics. If the Month-over-Month Retail Sales figures have been influential, then there is a good chance that the GDP print will be higher. The only downside to the Retail Sales figures that we need to be careful of is that it does not account for inflation, and the increase in the Retail Sales figures could also be a by-product of inflation.

To be noted: The Retail Sales figures are seasonal. It generally tends to increase around the holiday season. Hence, care must be taken during analysis that the decline in stats is due to a business slowdown or seasonal effects. In this case, the Retail Sales figures Year-over-Year is also another parameter that we can use to compare the current conditions with the preceding year to understand the growth trend better, as the GDP is also compared with the last year.

Although data is available in the seasonally adjusted format, to account for the seasonal patterns but it does not adjust for inflation. Hence, it is essential for users of the data to check for the seasonally adjusted figures.

Impact on Currency

Retail Sales is a leading macroeconomic high impact indicator. An increase in Retail Sales is the first sign of growth for businesses in monetary terms. Due to a multitude of economic factors that are affected by the Retail Sales figures, the volatility around the release of these figures is generally high.

It is a proportional indicator, meaning that a consistent or significant increase in the Retail Sales figures translates to increased profits for the businesses, indicates reasonable Consumer Confidence and Consumer Spending, and in turn it will also translate to increased employment, and wage growth. It is a cyclical effect that further promotes spending, and business booms and the economy prospers. It translates to higher GDP prints, which is appreciating for the currency.

Low Retail Sales figures are indicative of a slowdown of business, bearish Consumer Sentiment, where consumers are saving more and spending less. It stagnates the businesses, in the worst case, could lead to lay-offs, and ultimately recession. It will translate to lower GDP prints, which is depreciating for the currency.

Economic Reports

In the United States, the Census Bureau publishes monthly reports of the Retail Sales figures on its official website under the section “Monthly Retail Trade.” The report is released at 8:30 AM about two weeks after the reference month (13-15th day of the month). The schedule for the year is already posted on the website for the user’s convenience. The report details the total sales, percentage changes, and also YoY (Year-over-Year) changes.

Sources of Retail Sales MoM

  • The Month-over-Month Retail Sales statistics can be found here
  • Both advance estimates and Retail Sales figures are available in aggregated format in St. Louis FRED website here
  • We can find Retail Sales monthly figures for various countries here

Impact of the ‘Retail Sales – MoM’ news release on the Forex market

In the previous section of the article, we understood the Retail Sales economic indicator and its consequences on the economy. We will take this discussion forward in identifying the impact of Retail Sales on the value of the currency. Retail Sales is an important economic indicator because consumer spending drives much of our country.

When consumers spend more, the economy tends to hum along, whereas if consumers are uncertain about their financial future, they hold off their purchases that lead to the slow down of the economy. The release of Retail Sales numbers is said to have a large impact on the currency, as shown in the below image.

In this section, let’s analyze the Retail Sales data of the Unites States that was gathered in the month of March. The below image shows that there was a big drop in the Retail Sales compared to the previous month indicating a major disruption in the economy. Let’s see how the market reacts to this data.

USD/JPY | Before the announcement

We will start with the USD/JPY currency pair to witness the impact of the news announcement. The above image shows the state of the chart before the news announcement, where we see that the overall trend of the market is up, and currently, the price is on the verge of continuation of the trend. Depending on the impact of the news, we will position ourselves in the currency pair.

USD/JPY |  After the announcement

After the news announcement, there is a surge in the price, and volatility jumps to the upside. Even though the Retail Sales were very poor in the month, the market reaction was opposite to what was expected. After the news release, traders bought US dollars and strengthened the currency much more. The bullish ‘news candle’ shows the impact of the news on the currency. Since the market reacted very positively to the data, we should take a ‘buy’ trade only after a price retracement.

EUR/USD | Before the announcement

EUR/USD | After the announcement

The above images represent the EUR/USD currency pair, where we see that the market is in a significant downtrend indicating the great amount of strength in the US dollar. The price is currently is at its lowest point, which means we need a pullback in the market to join the trend. If the news announcement results in a retracement of the price, this could be taken as an opportunity for taking a ‘short’ trade.

After the news announcement, the market moves lower, and volatility increases to the downside. Although the Retail Sales data was weak, it did not result in weakening of the currency, but rather the US dollar strengthened. This means the news data was not bad enough to turn the markets to the upside. We will still be looking to enter the market only after a price retracement to a key technical level.

USD/CAD | Before the announcement

USD/CAD | After the announcement

The above price charts are of the USD/CAD currency pair, where we see that the market is aggressively moving up with almost no price retracement. This indicates the US Dollar is very strong, or the Canadian dollar is weak. In any case, we will join the trend only if the price retraces to a ‘support’ or ‘demand’ area.

After the news announcement, volatility expands on the upside, and the price closes, forming a bullish ‘news candle.’ Here too, the Retail Sales data has an opposite impact on the currency as the market reacts positively to the data even though the Retail Sales were largely lower in this quarter. It is advised not to chase the market after the news release since it against the rules of risk management.

We hope you understood Retail Sales MoM fundamental Forex driver and the relative impact of its news announcement on the Forex price charts. Cheers!

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Forex Market Analysis

The Positive Data Reported in Canada could support a rate hike soon

Hot Topics:

  • The positive data reported in Canada could support a rate hike soon.
  •  The Greenback rally continues.
  • FTSE maintain the bull trend, DAX waits for ECB meeting?

Positive data reported in Canada could support a rate hike soon.

The consumer inflation (YoY) in March increased to the highest level in three years reaching 2.3%, climbing from the 2.2% reported in February. The Core Inflation (YoY) descended to 1.4% in March from the 1.5% in February. The higher oil prices have influenced inflation to rise. On the other hand, retail sales in February have increased to 0.4% from 0.1% reported in January. The Bank of Canada maintains a 2 percent inflation target; this scenario could signal an interest rate hike soon. In the last Monetary Policy meeting, the Bank of Canada decided to maintain the rate at 1.25%.

In the technical context, a correction for the Canadian Dollar group could show soon. In the EURCAD cross, we expect a bullish movement with a target placed in the 1.58 level before making new lows.

In the same way, GBPCAD is developing a bullish retracement process that could reach 1.805 – 1.81, the area from where it could make the bearish continuation of the main trend.

The Greenback rally continues.

For the fourth consecutive session, the US Dollar saw advances compared to its main competitors. The Euro has broken down its short-term consolidation structure but has been stopped by the lower trend-line of its long-term triangle pattern.

The Pound tested the 1.40 psychological level again, from where it is bouncing. We expect a retracement to a Fibonacci level before we decide to sell this pair.

The Swissy could visit the area between 0.9765 and 0.9836 before it makes a bearish cycle.

FTSE maintains the bull trend, DAX waits for ECB meeting?

The main European indices have closed with a mixed sentiment. The FTSE 100 closes the last trading session of the week climbing above the pivot level 7,326. We expect more upsides until the 7,450 – 7,520 area before it makes a bearish leg.

On the opposite side, DAX 30 could not climb up above the pivot level of 12,622. The German index could make a new bearish leg, likely to be around the 12,100 – 12,200 area before the ECB Monetary Policy Meeting and continue the bullish cycle.

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