U.S. Dollar: Retail Sales Could Provide Hope

Given the big surprise in the U.S. retail sales report, we would have expected a more dramatic reaction in the U.S. dollar. The greenback sold off against the most of the major currencies but still managed to end the day higher against the euro and Swiss Franc. Whenever it comes to trading U.S. data, the most logical reaction to the economic report tends to be in USD/JPY and today was no exception. Thirty minutes after the retail sales report was released, USD/JPY fell over 60 pips and by noontime in NY and the London close, the currency pair was down close to 100 pips from its prerelease levels. The reaction in the EUR/USD on the other hand was rather muted considering that ECB President Trichet delivered his press conference minutes after the number. Cautious comments from the central bank head tempered the slide in the dollar and left the EUR/USD basically unchanged on the day. There has been a lot of confusion about how consumer spending could have been so weak when everyone was reporting strong holiday sales. However unless there is a logical explanation that suggests that the drop off in spending was distorted, there should be a lasting impact on the dollar.