US Dollar unlikely to receive relief from October retail sales preview

  • After a flat September, retail sales in the US are predicted to increase by 1% in October.
  • The US Dollar’s (USD) valuation will probably continue to be determined by risk perception.
  • Market players will closely monitor large retailers’ Q3 earnings releases.

After remaining constant at $684 billion in September, retail sales in the US are expected to increase by 1% in October. Following October’s lower-than-anticipated Consumer Price Index (CPI) statistics, the US Dollar (USD) has been having trouble finding buyers, and the Retail Sales report is not expected to have much of an effect on the USD’s value.

Prior to the release of the October inflation report, the likelihood of a smaller, 50 basis point (bps), Federal Reserve rate increase in December had increased to 50% from 80%. The sharp decline in the US Dollar Index demonstrated that investors were looking for a chance to unwind crowded Dollar long positions, even though some FOMC policymakers cautioned markets against getting ahead of themselves by pricing in a less aggressive tightening outlook.

Market Repercussions

The retail sales data from the US Census Bureau does not account for price fluctuations, therefore it does not provide a true picture of consumer behavior. However, a sudden drop in retail sales might cause the financial markets to respond favorably since it would indicate a decrease in consumer demand, which the Fed has been attempting to achieve by raising interest rates.

In that case, risk flows could still rule the markets, making it challenging for the US Dollar (USD) to hold its own against rivals that are also susceptible to risk, including the Euro (EUR) and the Pound Sterling (GBP).

On the other side, stronger-than-expected sales growth may support a USD rebound. A USD-positive market reaction, meanwhile, should be brief unless there is a discernible downturn in risk sentiment.

It’s important to note that a number of significant US retailers are expected to report third-quarter earnings this week. Investors are more likely to focus on these figures than the Retail Sales report.

At the time of publication, Walmart’s stock had gained close to 5% the day after the retail behemoth revealed that it anticipates US sales to rise by 5.5% in fiscal 2023, up from a 4.5% growth in the prior earnings release.

On Wednesday, the Lowe’s, Target, and TJX Companies will all disclose their earnings results. On Thursday, before Foot Locker and Buckle Inc. finish the week, Macy’s, Kohl’s, Ross Stores, and Gap will release their earnings reports.

The October Retail Sales data shouldn’t have much of an impact on how the Fed’s rate is priced in the market. Therefore, in the short run, the US Dollar’s movement should continue to be determined by general risk perception.

The USD may struggle to stage a comeback if Wall Street’s key indexes continue to rise in the second half of the week as big retailers report earnings that beat expectations.

Technical forecast for the US Dollar Index

The US Dollar Index is now trading close to 106.00. That support is strengthened by the Fibonacci 50% retracement of the March-October upswing and the 200-day Simple Moving Average (SMA). If the index falls below that level and is unable to regain it, it may then aim for 105.00 (a psychological threshold) and 104.00 (a Fibonacci 61.8% retracement) as its next two levels.

On the upswing, 107.00 (a static level) appears to have developed as temporary resistance before 108.00 (a Fibonacci 38.2% retracement). The index may continue its rebound toward 109.00, where the 100-day SMA is placed, with a daily close above the latter.

The Relative Strength Index (RSI) indicator on the daily chart is now hovering around 30, indicating the possibility of a technical correction prior to the subsequent move lower.