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US Retail Sales Best in 18 Months, Dollar Gaps Higher on Draghi

Posted by Joseph Trevisani on Apr 14, 2014 11:21:00 AM

American consumers returned to the stores in March as winter relaxed its grip on much of the country.

Retail sales jumped 1.1 percent, the largest one month increase since September 2012, following February’s 0.7 percent gain that more than doubled on revision. 

March's annual sales increase soared to 3.8 percent from 1.8 percent in February. It was the first twelve month increase over 2.0 percent this year. Ten of 13 reporting categories recorded gains, according to the Commerce Department in Washington today. Economists had forecast a 0.9 percent gain.

The dollar saw a modest improvement against the euro after the issue, rising from 1.3825 to 1.3808 within five minutes of the retail sales report. Far more damage had been done to the euro earlier by comments from several ECB officials attempting to dent the united currency's strength.

The euro high on Friday was 1.3906 and it closed at 1.3886. It opened in Asia on Monday over 40  points lower at 1.3843 driven down by comments from ECB President Mario Draghi who said to reporters in Washington on Saturday, "The strengthening of the exchange rate requires further monetary stimulus.That is an important dimension for our price stability."

Mr. Draghi’s comments were followed by governing board member Christian Noyer who said the recent appreciation of the euro isn’t appropriate. Then Josef Bonnici, head of the Central Bank of Malta, a recent addition to the united currency, stated that the euro rate "is still at a higher level than would be “desirable” for exports to support economic growth.

The euro has gained 15 percent versus the dollar since Mr. Draghi's promise to do "whatever it takes" to save the euro in the summer of 2012.

A strong euro can be a problem for all European exports outside the euro zone, but is particularly so for  weaker economies such as Greece and Portugal whose relatively low value exports  are thus overpriced when compared to those of  non-eurozone competition and who’s tourism suffers for the same reason.

With the sales figures for February revised substantially higher, it seems the winter weather effect, if any, was limited to January which saw a 0.7 percent decline in sales the largest drop since the 0.8 percent drop in March 2013.  February’s subsequent 0.7 percent rise had been the strongest since last June until topped by March's 1.1 percent.

The so called 'retail sales control group' which closely mimics the consumer spending component of gross national product, surged 0.8 percent in March, after an upwardly revised 0.4 percent gain in February. It was the best two month performance since the 1.38 percent increase in February and March of 2012.

First quarter GDP figures will be issued in two weeks on April 30th.  Current expectation is that U.S. economic growth will have slowed substantially to an annual rate of 1.2 percent in January, February and March from the 2.6 percent pace in the fourth quarter. 

Some of this deceleration has been blamed on the harsh weather in January and February, though in retrospect the impact seems to have been exaggerated considering the strong retail sales numbers for February and March.,

 

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg

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