High numbers for retail sales will usually be accompanied by strong numbers in inflation. In the same way, rising inflation puts upward pressure on interest rates , so too does higher retail sales numbers. Traders consider higher rates as immediately bullish for a currency, with the lack of contrasting data, strong retail sales data should cause that currency to rally, at least near term.
There may be a lag between retail sales and inflation data, especially since the former is revised a month later for the final number, which is open to large variations. Large deviations from expectations in this data are common due to the variability of factors that drive retail sales. However, even something as simple as severe weather, for example, can be a cause for this data to be much lower than anticipated.
Monthly retail sales data can be very volatile , and some caution is often warranted. Both factors can cause confusion or cloud the overall underlying trend on certain occasions. A widespread practice is to use a 3-month moving average of the MoM percentage changes rather than just the last monthly release. Recently US Core Retail Sales has become the data set that is followed mostly by economists and analysts as this data set is less volatile. As mentioned earlier the fact this data excludes two components that distort the overall reading for retail sales contributes to a more reliable measure of economic activity and limits external factors that are related to commodity prices and auto promotions.
Revision of data can also have a significant impact on FX markets as some revisions can be considerably drastic. This was a substantial variation from initial readings. However, as revisions are issued the same day and time as new releases, the impact of the market is derived from a combination of these numbers. The chart above shows what happened on April 14 th , after the retail sales release.
Data for March MoM was released at The consensus, which is the average of forecasts at 0. The revision of the previous month from an initial 0. Generally speaking, weak retail sales data is bearish for the US dollar. We can also see how the price action remained in a fairly contained range running up to the data release. Usually, a strong number for retail sales, that is a number that is higher than expected should cause the US dollar to rally.
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While a weak number, lower than expected, should cause dollar to fall in price. The immediate effects of a data release can be seen as a knee-jerk reaction to the new information as it arises. The best way to build the average is using revised data only, so your 3-month average will be lagging by two months instead of one, but it will also be more accurate.
On the day of retail sales release, it is necessary to also look at the other data released alongside it. Retail sales figures are released together with inflation data, usually Consumer Price Index. This set of data is also important and must be incorporated into the analysis of retail sales data, compounding readings for both sets of data together with the revised readings for retail sales.
Contradictions between the two data sets may arise, for example, higher than expected retail sales but lower than expected consumer price index. In these cases, price will usually be choppy initially, until the market figures out which data has more weight. Usually, the one that changed the most will dictate market direction. Log In Sign Up. Stocks Market Pulse. ETFs Market Pulse.
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