US Retail Sales expected to surge in June, deliver potential US Dollar relief

• US Census Bureau will publish the June Retail Sales report on Tuesday, July 18.
• United States Retail Sales are expected to rise by 0.5% after unexpectedly increasing in May.
• The continued uptick in auto sales to boost US Retail Sales, fueling a US Dollar relief rally.

Retail Sales data in the United States (US) will be published by the Census Bureau on Tuesday, July 18. The June headline Retail Sales figure is expected to see another increase after unexpectedly rising in May. Note that the Retail Sales data is adjusted for seasonality but not for inflation.

The United States Dollar (USD) has been struggling near the lowest level in 15 months after last week’s soft United States Consumer Price Index (CPI) and Producer Price Index (PPI) reports, which revived expectations that the US Federal Reserve (Fed) is nearing the end of its tightening cycle.

The US Retail Sales report could have a significant impact on the Fed interest rate expectations and, in turn, on the US Dollar’s valuation, as there is a lack of high-impact US economic data this week and the Fed’s ‘blackout period’ has started ahead of the July 25-26 FOMC meeting.

What to expect in the June US Retail Sales report?

The headline Retail Sales are seen rising 0.5% MoM in June, compared with a 0.3% growth seen in May. Excluding autos, Core Retail Sales are likely to have risen 0.3% in June, compared with a 0.1% increase registered in May. US Retail Sales Control Group is expected to increase 0.4%, courtesy of the growth in online sales.  

Economists expect auto sales to contribute to the increase in the retail volume last month. Rapid growth in sales in bars/restaurants is also seen adding to the headline retail sales figure. However, slowing fuel sales could pose a downside risk.

According to analysts at BBH, “June retail sales Tuesday will be the data highlight.  Consensus sees headline sales up 0.5% m/m, ex-auto up 0.4%, and the so-called control group used for GDP calculations up 0.4%. We note that markets should not just rely on retail sales data to gauge the strength of the consumer, as it only covers goods. Personal spending covers services as well and will give a much fuller picture, but the June reading won’t be reported until July 28 along with PCE data.” 

When will US June Retail Sales data be released and how can it affect EUR/USD?

The US Retail Sales data for June is due to be published at 12:30 GMT on Tuesday. With the US Dollar wallowing in multi-month lows heading into the data release, the EUR/USD pair is holding firmer above the 1.1200 mark. Stronger-than-expected US Retail Sales data could revive the US Dollar bulls, triggering a brief correction in the main currency pair ahead of next week’s Fed and European Central Bank (ECB) policy announcements.

On the other hand, disappointing Retail Sales details are likely to rekindle recession fears while bolstering the market’s expectations of a probable Fed rate hike pause after the expected 25 bps July rate increase. At the moment, markets are pricing in an 83% chance of the Federal Reserve holding rates at the current level in September.

The data-led weakness in the US Dollar, however, could be limited due to increased safe-haven demand on economic growth concerns.

Meanwhile, Dhwani Mehta, Asian Session Lead Analyst at FXStreet, offers a brief technical outlook for the major and explains: “The 14-day Relative Strength Index (RSI) is holding well within the overbought territory, suggesting that a correction is in the offing. However, any pullback in the EUR/USD pair could be seen as a good dip-buying opportunity.”

Dhwani also outlines important technical levels to trade the EUR/USD pair: “On the upside, Euro buyers aim for the 1.1270 static resistance should the 1.1250 level hold. Meanwhile, acceptance above the 1.1300 round figure is critical to unleashing additional upside. Alternatively, immediate support awaits at the previous day’s low of 1.1203, below which a sharp sell-off toward the 1.1150 psychological barrier will be on the cards.”