The US dollar initially spiked higher amidst the 8:30 ET release of US retail sales and import prices, as we continue to see that risk trends are dominating the forex markets. The data wasn't fundamentally bullish for US assets, but instead, the disappointing nature of the news triggered flight-to-quality.
Indeed, the Advance Retail Sales Index fell by the most since record-keeping began in 1992 at a rate of 2.8 percent in October, which also marked the fourth straight month of declines. A breakdown of the report shows that shows that nearly every component contracted, led by weak auto, gasoline station, furniture, and electronic sales. Given the pronounced deterioration of the labor markets and record-low levels of consumer confidence, spending is generally anticipated to contract further in coming months. Meanwhile, the Import Price Index also fell by the most on record, going back to 1989, at a rate of 4.7 percent during the month of October thanks to a plunge in commodity prices along with the broad appreciation of the US dollar. Overall, this morning's economic releases will only add to speculation that the Federal Reserve will cut rates further, with Credit Suisse overnight index swaps fully pricing in a 50bp reduction on December 16. US Advance Retail Sales Index (MoM) Source: Bloomberg US Import Price Index (MoM) Source: Bloomberg As we mentioned at the start, though, risk trends are dominating price action throughout the financial markets. Focusing on EUR/USD, the pair ran into key intraday resistance on Thursday afternoon at 1.2850/55, and if risk aversion becomes the theme of the day on Friday, EUR/USD could fall back to a region of support between 1.24-1.25. Source: Intellicharts Written by Terri Belkas, Currency Strategist of DailyFX.com E-mail: tbelkas@dailyfx.com