Dollar to Decline vs. Yen if US Retail Sales Data Disappoints

The US Dollar is likely to correct lower against the Japanese Yen if a disappointing Retail Sales report dents expectations of an earlier unwinding of Fed stimulus.

Talking Points

• US Dollar May Fall vs. Yen if Retail Sales Data Disappoints

• Euro to Take Cues from Eurozone Finance Ministers’ Meeting

• Australian Dollar Sinks on Swan Comments, China Data Set

An uneventful economic calendar in European trading hours turns the spotlight on April’s US Retail Sales report. Expectations call for receipts to decline 0.3 percent, marking the second consecutive print in negative territory. Despite a handful of recent upside surprises, US economic news-flow has tended to underperform relative to consensus forecasts since late March. This hints analysts continue to overestimate the health of the world’s largest economy and opens the door for a downside surprise. Such an outcome is likely to weigh against bets on a tapering of Federal Reserve stimulus efforts. This threatens to apply downward pressure to the US Dollar, particularly against the Japanese Yen where the greenback enjoys a yield advantage.

Separately, Eurozone Finance Ministers are due to meet in Brussels. Progress on the formation of a region-wide banking union with an eye to allow for direct recapitalization of financial institutions through the EFSF/ESM bailout funds is likely to feature prominently on the agenda. Extensions of rescue loan repayment terms for Ireland and Portugal and the approval of the latest tranche of Greek funding are also on the docket. Eurogroup leader Jeroen Dijsselbloem and EU Commissioner Olli Rehn are expected to hold a press conference after the sit-down and traders will parse their commentary for policy guidance. Signs of meaningful progress may offer a lift to the Euro.

The Australian Dollar underperformed in overnight trade as Treasurer Wayne Swan warned that the currency’s strength amounted to an “unprecedented whack” to revenue and led to the government’s “big decision to delay [its] return to surplus.” A narrowly disappointing set of Chinese economic data compound downward pressure. The currency slid as much as 0.4 percent against its leading counterparts.

Asia Session:

GMT	CCY	EVENT	ACT	EXP	PREV
22:14	NZD	REINZ Housing Price Index (APR)	3661.5	-	3631.4
22:14	NZD	REINZ Housing Price Index (MoM) (APR)	0.8%	-	2.4%
22:17	NZD	REINZ House Sales (YoY) (APR)	25.2%	-	10.9%
22:45	NZD	Food Prices (MoM) (APR)	0.2%	-	-1.3%
23:50	JPY	Japan Money Stock M3 (YoY) (APR)	2.6%	2.5%	2.5%
23:50	JPY	Japan Money Stock M2 (YoY) (APR)	3.3%	3.1%	3.1%
1:30	AUD	Value of Loans (MoM) (MAR)	5.8%	-	1.2%
1:30	AUD	Home Loans (MAR)	5.2%	4.0%	2.1%
1:30	AUD	Investment Lending (MAR)	2.1%	-	1.9%
1:30	AUD	NAB Business Conditions (APR)	-6	-	-7
1:30	AUD	NAB Business Confidence (APR)	-2	-	2
1:30	AUD	RBA Credit Card Purchases (MAR)	A$20.2B	-	A$20.2B
1:30	AUD	RBA Credit Card Balances (MAR)	A$49.7B	-	A$50.0B
5:30	CNY	Fixed Assets Inv Excl. Rural YTD (YoY) (APR)	20.6%	21.0%	20.9%
5:30	CNY	Industrial Production YTD (YoY) (APR)	9.4%	9.5%	9.5%
5:30	CNY	Industrial Production (YoY) (APR)	9.3%	9.4%	8.9%
5:30	CNY	Retail Sales YTD (YoY) (APR)	12.5%	12.6%	12.4%
5:30	CNY	Retail Sales (YoY) (APR)	12.8%	12.8%	12.6%

Euro Session:

GMT	CCY	EVENT	EXP/ACT	PREV	IMPACT
6:30	EUR	Bank of France Business Sentiment Indicator (APR)	94 (A)	93	Low
7:15	CHF	Retail Sales – Real (YoY) (MAR)	-0.9% (A)	2.4%	Low
13:00	EUR	Euro Zone Finance Ministers Meet in Brussels	-	-	High

Critical Levels:

CCY	SUPPORT	RESISTANCE
EURUSD	1.2877	1.3048
GBPUSD	1.5295	1.5439

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya, e-mail ispivak@dailyfx.com. Follow Ilya on Twitter at @IlyaSpivak

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