What is the U.S. Retail Sales Report?

U.S. Retail Sales is a leading economic indicator used to measure the percentage change in the total value of sales at the retail level during the previous month. It is a leading indicator of economic health because the report reflects a wide variety of consumer spending, such as restaurants, consumer goods, and automobiles. Consumer sentiment can also be derived from this survey in order to gauge the outlook on the U.S. economy. This report is the earliest indicator of consumer spending released by the U.S. Census Bureau. An additional report released at the same time is the Core Retail Sales report, which does not include sales of automobiles. When used together, the reports paint a picture of the state of the U.S. consumer. This survey predominantly helps to analyze market trends and to determine the direction of the U.S. economy.

If the Survey Comes Inline with Market Forecasts

Expectations for this month are suggesting that the U.S. Retail Sales will fall by 0.5% in February. The U.S. economy is currently facing both an economic crisis and a financial crisis, triggered by a downturn in the housing market, a lack of credit, and the reluctance of banks to lend. Consumers may have delayed large purchases on account of the deteriorating economy and a lack of credit could adversely affect this report. The sale of new autos accounts for roughly 20% of the report’s total and are largely financed by bank loans. The recent drop in equity markets may also add to a negative outlook for the American consumer which could reduce their spending on non-essential items. A decreasing figure will most likely be interpreted by investors that the American people are scaling back their purchases in a time of financial uncertainty. Such a scenario will probably move the greenback down and the EUR/USD might rise to test the 1.2900 level.

If the Survey Will Surprise With Bullishness

When the actual figure is higher than forecasted, traders are likely to see the USD appreciate against its currency pairs and crosses. The volatile two trading weeks we have just experienced concluded with significant strength for the USD. Investors are now following the opportunity to make profits out of their open positions on the USD, and a better-than-expected figure on the Retail Sales survey, such as 0% or higher, will possibly provide them that exact opportunity. Such a figure is good because it will ease some concerns regarding a contracting U.S economy. If U.S. citizens are increasing their purchases, this may reduce pressure in a tough market and push the USD higher. With a decrease in gas prices that are down 47% from their highs, consumers may see an increase in disposable income, reflecting in additional purchases. In this turn of events, the EUR/USD might correct itself down to reach as low as the 1.2500 level.

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What are the European Interest Rate Figures?

Expected to be released tomorrow are the target interest rates of the Bank of England (BoE) and European Central Bank (ECB). These are called the Official Bank Rate and Minimum Bid Rate, respectively.

These figures are each released monthly, usually during the first week of the month. They are important because short-term interest rates are the leading factor in determining the value of a currency. In fact, most other economic indicators are used by traders to speculate about the future movement of these interest rates.

The British Official Bank Rate is decided on by the Monetary Policy Committee (MPC) of the BoE. The Euro-Zone Minimum Bid Rate is decided on by the 6 members of the ECB as well as the central bank governors from each of the 16 nations in the European Monetary Union. According to the needs of each respective economy, the banks will elect to increase, decrease, or leave the rate unchanged. Traders pay close attention to these figures as they have a strong correlation with the value of the GBP and EUR.

If Interest Rates are Changed In-Line with Market Expectations

Economic analysts are forecasting that Britain will lower its Official Bank Rate by 50 basis points from 1.00% to 0.50%. The Euro-Zone is also expected to cut its Minimum Bid Rate by 50 basis points from 2.00% to 1.50%.

If interest rates are indeed reduced by both central banks, traders may expect depreciation in the value of the GBP and EUR. A cut to interest rates devalues a currency as it increases the amount of that currency available in the market. However, in these times of financial crisis and global economic slow-down, an interest rate cut in an exceedingly weakened European economy is seen as an action which is intended to boost consumer confidence and increase spending, which may in fact help strengthen the currencies of the region after initially weakening them through monetary easing.

In this situation, traders may see the GBP gaining strength to test the 1.4300 level against the USD, while the EUR may regain lost ground and trade near the 1.2600 level.

If Central Banks will Surprise the Market with the Opposite

As of now, analysts are predicting a rate cut throughout the Euro-Zone, including Britain. If, however, these rate cuts are not as deep, or if they are not taken at all, the likely result will be a continuation of the current trends for the European currencies. This may indicate that the central banks of the Euro-Zone, as well as the Bank of England (BoE), are either afraid of, or uncertain about the effects of the expected rate cuts. This will indicate a deep fear in the economy and prevent many investors and consumers from regaining confidence in the market.

With this result, the GBP will continue on its downward path and likely test the 1.3800 price level versus the USD. Likewise, the EUR will continue depreciating against the Dollar with the price level of 1.2200 potentially being reached by beginning of the following week.

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What is the “U.S. Core CPI “?

The Core Consumer Price Index (CPI) is an economic indicator that measures the change in the price of goods and services purchased by consumers, excluding food and energy. The indicator is released on a monthly basis and is seasonally adjusted.

There are many versions of the CPI released by the Bureau of Labor Statistics, but Core CPI is the most widely used by forex traders. Food and energy prices make up a large portion of CPI, but they tend to be very volatile and distort the underlying trend. Therefore they are excluded.

Traders follow this survey very closely because consumer prices account for a majority of overall inflation. Inflation is important to currency valuation because rising prices can force a central bank to raise interest rates to tame inflationary pressures.

If the Survey Comes Inline with Market Forecasts

Expectations for this quarter reveal that the U.S. Core CPI figures will probably rise from 0.0% to 0.1%.

Previous surveys have shown that publications that go inline with market forecasts tend to support the Dollar. They have also shown that in cases where publications have beaten analysts’ forecasts, the market was greatly impacted, and the USD had instantly risen, usually in a dramatic trend.

Because of the perceived economic weakness in the U.S. economy, any measure near the forecasted value may act as another positive to sustain the USD’s recent bullish run against the EUR. We may see a EUR/USD rate of 1.2550 by the weeks end.

If the Survey Will Surprise With Bearishness

When the actual figure is higher than forecasted, investors are likely to see the USD depreciating against its currency pairs and crosses.

In the face of the global recession, previous indicators relating to inflation have shown consistent declining numbers. If inflationary pressures are present in the market, this could put added pressure on the Federal Reserve. The Fed’s ability to reduce inflation is severely restrained with U.S. interest rates close to 0%. This leads us to believe if Core CPI fails to meet expectations, the USD could move lower against the EUR, possibly to the 1.2750 level.

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What is the U.S. Trade Balance?

The U.S. Trade Balance is the difference between the amount of goods and services exported versus the amount imported into and out of the United States. A positive number in this report indicates that there is a trade surplus, meaning the U.S. has exported more than it has imported. A negative number is the opposite: a trade deficit, also called a trade gap. A trade deficit results from importing more than the country exports.

This report is issued monthly, usually 40 days after the end of the month. Export demand and currency demand are directly linked because foreigners must buy the domestic currency to pay for the nation’s exports. Export demand also impacts production and prices at domestic manufacturers. As such, if export demand grows, even marginally, it will indicate that the USD will gain some small momentum to its recent bullish strength. If, however, the trade deficit continues to worsen, the USD could potentially see a reversal.

If the Report Comes In-Line with Market Forecasts

Currently the U.S. Trade Balance, while a negative number historically, is forecast to increase from -56.5B to -53.5B. If this report is indeed released in-line with market forecasts, then it will signify that demand for U.S. exports has increased slightly. Since U.S. goods and services must be bought with USD, the value of the Dollar will have inherently increased as well as a result of this indicator. Likewise, if this indicator is in fact released as an even higher number than forecast, the bullish run in the USD may continue to gain momentum. With a release of this nature, traders may witness the USD resume its previous bullish run and probably test the 1.2500 price level against the EUR once more.

If the Report Surprises with a Contradiction to Market Forecasts

As of now, the U.S. Trade Balance is predicted to indicate that demand for U.S. goods and services has increased and the deficit has shrunk slightly. If, however, this report indicates that this demand has in fact increased less than forecasted, or even decreased, the result will likely convince investors that the U.S. economy is not in as good a shape as previously thought. As the USD has been flat in recent days, a release of this kind may actually force the Dollar into a deeper bearish correction, testing the 1.3200 level against the EUR in the short-term.

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What are the European Interest Rate Figures?

Expected to be released tomorrow are the target Interest Rates of the Bank of England (BoE) and European Central Bank (ECB). These are called the Official Bank Rate and Minimum Bid Rate, respectively.

These figures are each released monthly, usually during the first week of the month. They are important because short-term Interest Rates are the leading factor in determining the value of a currency. In fact, most other economic indicators are used by traders to speculate about the future movement of these Interest Rates.

The British Official Bank Rate is decided on by the Monetary Policy Committee of the BoE. The Euro-Zone Minimum Bid Rate is decided on by the 6 members of the ECB as well as the central bank governors from each of the 15 nations in the European Monetary Union. According to the needs of each respective economy, the banks will elect to increase, decrease, or leave the rate unchanged. Traders pay close attention to these figures as they have a strong correlation with the value of the GBP and EUR.

If Interest Rates are Changed In-Line with Market Expectations

Economic analysts are forecasting that Britain will lower its Official Bank Rate by 100 basis points from 3.00% to 2.00%. The Euro-Zone is also expected to cut its Minimum Bid Rate by 50 basis points from 3.25% to 2.75%.

If Interest Rates are indeed reduced by both central banks, traders may actually expect an appreciation in the GBP and EUR. Typically, a cut to Interest Rates devalues a currency as it increases the amount of that currency available in the market. However, in these times of financial crisis and global economic slow-down, an Interest Rate cut in an exceedingly weakened European economy is seen as an action which is intended to boost consumer confidence and increase spending, which may in fact help strengthen the currencies of the region instead of weaken them.

In this situation, traders may see the GBP gaining strength to test the 1.5500 level against the USD, while the EUR may regain lost ground and trade near the 1.3000 level.

If Central Banks will Surprise the Market with the Opposite

As of now, analysts are predicting a rate cut throughout the Euro-Zone, including Britain. If, however, these rate cuts are not as deep, or if they are not taken at all, the likely result will be a continuation of the current trends for the European currencies. This may indicate that the central banks of the Euro-Zone, as well as the Bank of England (BoE), are either afraid of, or uncertain about the effects of the expected rate cuts. This will indicate a deep fear in the economy and prevent many investors and consumers from regaining confidence in the market.

With this result, the GBP will continue on its downward path and likely test the 1.4600 price level versus the USD. Likewise, the EUR will continue depreciating against the Dollar with the price level of 1.2400 potentially being reached by beginning of the following week.

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What is the U.S. Retail Sales Indicator?

U.S. Retail Sales is a leading economic indicator used to measure the percentage change in the total value of sales at the retail level during the previous month. It is a leading indicator of economic health because the report reflects a wide variety of consumer spending, such as restaurants, consumer goods, and autos. Consumer sentiment can also be derived from this survey in order to gauge the outlook on the U.S. economy. This report is the earliest indicator of consumer spending released by the U.S. Census Bureau. An additional report released at the same time is Core Retail Sales which does not include sales of automobiles. When used together, the reports paint a picture of the state of the U.S. Consumer. This survey predominantly helps to analyze market trends and to determine the direction of the U.S. economy.

If the Survey Comes Inline with Market Forecasts

Expectations for this month are suggesting that the U.S. Retail Sales will fall by -2.0% in September, reflecting a -0.8% decrease from October. Such a result could demonstrate a shrinking economy and a lower consumer sentiment in the U.S. The U.S. economy is currently facing a financial crisis, triggered by a downturn in the housing market, a lack of credit, and reluctance by banks to lend. This may adversely affect the report because the sale of new automobiles account for roughly 20% of the report’s total. U.S. auto sales are predominantly financed by bank loans. The recent drop in equity markets may add to a negative outlook for the American consumer which could reduce their spending on non-essential items. A decreasing figure will most likely be interpreted by investors that the American people are reducing their purchases in a time of financial uncertainty. Such a scenario will probably move the greenback and the EUR/USD might rise to test the 1.2900 level.

If the Survey Will Surprise With Bullishness

When the actual figure is higher than forecasted, traders are likely to see the USD appreciate against its currency pairs and crosses. The volatile two trading weeks we have just experienced concluded with significant strength for the USD. Investors are now following the opportunity to make profits out of their open positions on the USD, and a better-than-expected figure on the Retail Sales survey, such as -0.4% instead of -2.0% will possibly provide them that exact opportunity. Such a figure is good because it will ease some concerns regarding a contracting U.S. economy. If U.S. citizens are increasing their purchases, this may reduce pressure in a tough market and push the USD higher. With the recent decrease in gas prices, consumers may see an increase in disposable income, reflecting in additional purchases. In this turn of events, the EUR/USD might correct itself down to reach as low as the 1.2000 level.

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What is the Non-Farm Employment Change?

The U.S. Non-Farm Employment Change, also known as “Non-Farm Payrolls” (NFP) and the “Employment Report,” is a monthly economic indicator used to measure the change in the number of employed people, excluding the farming industry.

Each month the Current Employment Statistics Program surveys about 150,000 businesses, representing approximately 390,000 worksites, in order to provide detailed industry data on employment, work-hours, and earnings of workers on non-farm payrolls for all 50 U.S. states. The survey is then published on the first Friday of each month.

The NFP is an important leading indicator that also affects consumer spending, which accounts for a majority of overall economic activity. Traders value the indicator with the highest importance as its early monthly release can set the tone for the rest of the month’s market movement. Investors should also note Wednesday’s 13:15 (GMT) release of Automatic Data Processing Inc.’s (ADP’s) estimate of Non-Farm Employment Change. In the past, ADP has provided an accurate assessment of what was to come from the actual NFP release two days later. With the volatility of world economies in recent months, however, ADP has not been able to correctly estimate the Non-Farm Payroll outcome, only strengthening the real power behind Friday’s news release.

If the Survey Comes Inline With Market Forecasts

Expectations for this month reveal that the Non-Farm Employment Change figures are forecasted to drop to -200K from last month’s -159K. Such a decrease, or the possibility that this figure will drop further than this mark, will be a continuation of the devastating decline in employment numbers that the U.S. economy has experienced since April of this year. The recent economic struggle, which is being fought vehemently by the U.S. government, has created doubt in the market for the USD, which is driving its value lower. Considering that this survey has delivered negative figures for several consecutive months now, another sharp drop could signal a reversal to the USD’s bullishness. This would mean the USD could be facing a very unfortunate weekend, causing the EUR/USD pair to rise beyond the 1.3000 level once again.

If the Survey Will Surprise With Bullishness

If the actual figure is higher than forecasted, traders are likely to see a continuation of the recent bullish movements. Currently, investors are setting their positions on the USD based on the assumption that by the end of the week, the USD should face a bearish reversal. However, in case the survey delivers better figures than expected, such as a figure of -150K instead of the forecasted -200K, investors might be compelled to reevaluate their strategies and go long on the USD. In this turn of events, the USD may receive an extra boost that will help extend its bullishness, and the EUR/USD could head toward a price near 1.2400.

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What is the Advanced Gross Domestic Product (GDP) ?

The Advanced Gross Domestic Product (GDP) is a survey that is being used to measure the annualized change in the value of all goods and services produced by the relevant economy. It is defined as the total market value of all goods and services produced within the U.S. economy in one quarter, in this case the 3rd quarter. The survey is released on a quarterly basis and it measures the differences compared to the same quarter in the previous year. There are 3 versions of the GDP, released one month apart – “Advanced”, “Preliminary” and “Final”. The “Advanced” estimates are based on source data that is incomplete or subject to further revision by the source agency, while the adjusted figures are delivered through the ‘Preliminary’ version.

Traders follow this survey very closely because it is considered to be the broadest measurement of economic activity and a primary gauge of an economy’s health.

If the Survey Comes Inline with Market Forecasts

Expectations for this quarter reveal that the Advanced U.S. GDP figures will probably fall from 2.8% on the ‘Final’ publication to -0.5% on the ‘Advanced’.

Previous surveys have shown that GDP publications that go inline with market forecasts tend to leave the Dollar unchanged. They have also shown that in cases where publications have beaten analysts’ forecasts, the market was greatly impacted, and the USD had instantly rose, usually in a dramatic trend.

Because of the perceived economic weakness in the U.S. economy, any measure above the forecasted value may act as a positive that could return the USD’s previous bullish run against the EUR. We may see a EUR/USD rate of 1.2700 continue through the week’s end.

If the Survey Will Surprise With Bearishness

When the actual figure is lower than forecasted, investors are likely to see the USD depreciating against its currency pairs and crosses.

Previous indicators relating to consumer spending, sentiment, and retail sales all came in below their expected values. Also the failure of Lehman Brothers in September caused major turbulence in the financial markets during the third quarter. American citizens may have been spooked by this event and kept their spending tight in the previous quarter. GDP numbers may be negatively affected as private consumption contributes a large percentage of the calculation. This leads us to believe that Advanced GDP may fail to meet expectations and send the USD lower against the EUR, possibly to the 1.3000 level.

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What is the U.S. Federal Funds Rate?

The U.S. Federal Funds Rate, or Interest Rates, is the rate at which banks lend balances held at the Federal Reserve to other banks overnight. This figure is released 8 times each year. It is important because short-term Interest Rates are the leading factor in determining the value of a currency. In fact, most other economic indicators are used by traders to speculate about the future movement of these Interest Rates. This figure is decided on by the members of the Federal Open Market Committee (FOMC) who vote on where to set a “target rate,” because the actual rate is set by the open market. It is a mechanism used by the Federal Reserve to regulate the supply of money in the U.S. economy and has a direct impact on supply and demand for the USD.

According to the needs of the U.S. economy, the FOMC will elect to increase, decrease, or leave the rate unchanged. Traders pay close attention to this figure as it has a strong correlation with the value of the U.S. Dollar. If rates are cut, there will be an increase in the amount of USD in circulation making them grow weaker in value. If rates are increased, the exact opposite happens. Dollars are taken out of the economy to help contain inflation and strengthen the value of the USD.

If the Federal Funds Rate is Decreased

At present, market analysts are forecasting the Federal Funds Rate to be cut to 1.00% from its current level of 1.50%. If this happens it would indicate that the Fed is going to start buying securities. This will likely have the effect of lowering the value of the USD against its major currency pairs as traders will start selling USD during its devaluation.

By decreasing the Interest Rates, it stimulates U.S. economic growth by making it cheaper to get a mortgage or buy a car. This entices investors to put more money towards capital in the local economy. However, this change in the Interest Rate is always approached with caution. If rates are cut too far, the rapidly growing economy will force a sharp increase to the rate of inflation. As inflation raises, the cost of goods and services also rise and make the value of the dollar even weaker. When this happens it usually warrants a subsequent increase to the Federal Funds Rate.

Ultimately the Fed is trying to find the target interest rate that balances these factors. Traders should expect a call by the Fed to cut the present rates as the recession is weakening the buying power of most Americans and action must be taken to stave off further disaster.

If the Federal Funds Rate is Increased

Although the current forecast is predicting the Fed to cut Interest Rates, there is the possibility of an increase in this figure. If the Fed decides to enact such an increase in Interest Rates, it will begin selling securities. This will limit the amount of U.S. currency in the market. If the Federal Funds Rate will indeed be increased, the upward momentum of the USD will take off as its value becomes much stronger versus its currency rivals.

This result is less likely for October 2008 seeing as such a move has the potential to cause a recession. Since the U.S. economy is currently witnessing a recessionary move, an action such as this is not likely. It is far more possible that the Fed will indeed issue an order to cut current rates than it would be for the Fed to issue an increase in the Federal Funds Rate at this time.

The best way to capture profits from the announcement of these rates is to be aware of their impact on the strength of the USD and trade accordingly.

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What is U.S. Unemployment Claims?

U.S. Unemployment Claims, also known as Jobless Claims, is a survey used to measure the number of individuals who filed for unemployment insurance for the first time during the past week within the United States of America. It is released on a weekly basis, about 5 days after the week ends. Every state in the U.S offers jobless insurance programs that must conform to rules set down by federal law. The Labor Department in Washington then gathers all the data submitted by each state and releases the updated figures to the public on the following Thursday.

The number of unemployed individuals is an important gauge of general economic health because employed citizens are more likely spend and, therefore, more likely to increase total consumer spending.

If the Survey Comes Inline with Market Forecasts

Expectations for this month are suggesting that the U.S. Unemployment Claims have increased this week from 461K to 470K. It is no secret that the global financial picture is currently standing before a significant crossroad that is liable to have a profound impact on the upcoming year. However, one should not only consider the economic interpretation of the indicator, but also look from the psychological point of view. In times when equity markets all over the world are experiencing sharp losses, investors are finding themselves in a fragile state of mind, which in turn provides markets with extreme volatility.

Data is expected to indicate that after 4 consecutive weeks of decreasing levels of unemployed people, the U.S. economy is once again suffering from a growing number of people filing for unemployment insurance, which could trigger a bearish ripple upon USD crosses. If all stays in line with market forecasts the EUR/USD pair may rise towards the 1.3500 level once again.

If the Survey Will Surprise With Bullishness

When the actual figure is lower than forecasted, traders are likely to see the USD appreciate against its currency pairs and crosses. After a series of positive data from this exact survey, which pointed out that for the time being the economic crisis is only perceivable in the financial industry, another week of similar results will continue to strengthen the fact that at least for now the average person is not damaged from all the ominous prophecies in the market. The U.S. economy might be salvaged from what could be a long-lasting depression, and that will surely help to ease some of the growing concerns seen lately, even if it is for just for a little while. In this case, investors will feel somewhat more secure to disperse funds in U.S. industries, and by that to extend the current bullish trend of the USD. This scenario could get the EUR/USD to break its recent low record of 1.2750.

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