Dollar downfall or a resumption of the rally? Retail Sales to decide

• All measures of Retail Sales are expected to rise, but with a significant variation.
• The Control Group measure holds the key to the reaction.
• The US Dollar made a significant correction on the previous critical figure and awaits the verdict from this report.

The US Retail Sales are published on Tuesday, May 15th, at 12:30 GMT. The US economy is all about consumption, making the publication a top-tier gauge for the greenback. 

Back in March, headline Retail Sales advanced by 0.6%, better than expected. However, the core figures met expectations. Core sales excluding autos rose by 0.2%, and the Control Group improved by 0.4%. The numbers were OK, but not particularly impressive. One of the biggest drivers of sales was autos and auto parts. 

For April, headline sales could suffer from a correction in sales of automobiles and their parts. Headline sales are therefore expected to rise at a more modest pace of 0.3%. However, excluding autos, the total volume of sales carries expectations for a more prominent gain: 0.52%.

The Control Group is essential as it feeds into GDP reads and is also considered the best gauge of the economy. The group excludes autos, food, gasoline, and building materials, all volatile figures. And here, the same number is expected: 0.4%.

Any deviation from 0.4% in the Retail Sales Control Group could significantly impact the US Dollar. 

It is important to note that April, which is already in the Spring, also saw a short spell of cold weather. Commentators will likely argue about the impact of the snow on sales during this month as the meteorological effect was not that significant as in previous months.

The April Retail Sales report and the US Dollar. 

As mentioned earlier, Retail Sales are always a top-tier event. This time, the publication has two additional aspects.

First, this is the first report for the second-quarter. US GDP growth was slower in Q1, 2.3% annualized than in the past three quarters. The slowdown was not a shocker as previous years had usually begun with softer growth before things picked up later on. Nevertheless, markets will want to see a more rapid clip of growth and not another month of blaming it on the weather. 

An upbeat report will demonstrate that the Winter wobbles are now over while a disappointment will already ring alarming bells. 

The second aspect is the timing for the price of the US Dollar. The greenback rallied across the board for long weeks during April and until the first full week of May. It reached new 2018 highs against the Euro and multi-month highs against the Pound and the Yen.

The winning streak was broken as disappointing data for April accumulated. The Non-Farm Payrolls report showed a disappointing rise in wages: only 0.1% MoM and deceleration to 2.6% YoY. The publication did not stop the momentum. But then came the Inflation report with Core CPI sticking to 2.1% YoY against 2.2% expected. This miss was the straw that broke the camel's back. For the euro, it ended the "vomiting camel" pattern. The US Dollar began retreating and correcting its previous gains.

The Retail Sales report for April will, therefore, serve as a critical indicator for the next move of the US Dollar: the end of the correction and a resumption of rises, or an extended downfall.

Conclusion

All in all, the Retail Sales report is crucial in understanding the direction of the US economy and comes at a testy time for the US Dollar. The Retail Control Group is the most market-moving component of the report, and any deviation from 0.4% could prove very substantial for the US Dollar.

See how to trade the event with EUR/USD