How Retail Sales Affect the Forex Market
What is the effect of retail sales on the financial markets, specifically the Forex market? Are these reports beneficial to your trading?
Nearly all major currencies release retail sales data regularly, which is constantly watched by the forex market. Financial markets like the Forex market are among the most dynamic in the world.
In addition to its dynamic nature, if a trader plays smart, he can take advantage of any change that occurs, yet several factors play a role in how the tide turns. As an indicator of the growth of an economy, retail sales are one of those elements. Using it to our advantage requires us to understand what it is, what it does, and how it works!
Retail sales and USD: how are they related?
Retail sales constitute almost a quarter of economic activity in the US, and the USD in the Forex market is also heavily dependent on them.
The USD gains strength due to higher retail sales numbers and rising interest rates because retail sales numbers are up. As retail sales improve, there is also a possibility they will deteriorate if they get too hot, resulting in a depressed Dollar.
As a large proportion of US goods are manufactured overseas, an increase in demand for them also means an increase in the demand for the currencies of those countries. As a result, a negative relationship between the US Dollar and these currencies can also be detrimental.
Forex traders: do retail sales data benefit them?
Approximately three months before retail sales data is released for the month, the US Department of Commerce releases its preliminary estimate. Because this report covers Retail sales for the previous month, this report will be a factor in the fundamental forex calendar.
Participants in the market are likely to see the reports for each category. Therefore, their decisions regarding stocks and bonds may affect forex market trends. Instead of looking at each aspect of the report, forex traders consider the overall percentage.
Retail sales are higher than anticipated, which indicates that the economy is heading in the right direction. In the United States and the European Union, major celebrations such as Easter and Christmas may not be observed as usual. It is generally expected that increases will occur during these times, however. The improvement in retail sales data should, therefore, only slightly impact the markets.
Forex traders should check all the different interpretations of a worsening retail sales report before making any assumptions.
The two factors behind the drop in retail sales since the economy deteriorated and how they likely affect the market are listed below:
An unlucky season
Cold and wet weather can negatively affect retail sales. After all, who wants to go shopping in a blizzard? Consequently, traders should take caution when investing in this currency during such months because of similar data releases. After the season ends, economic indicators tend to recover.
Tax hikes
A tax increase may result in a drop in retail sales, but that is fine. It is more significant for the tax increase to be felt when the number is lower than expected. There is a possibility that analysts’ estimates will be off by that time. They are expected to revise their estimates shortly so that the next one will be accurate. Consequently, the FX market may temporarily see a decrease in the currency, but it will not last long.
Bottom line
Thus, when retail sales increase, currency value increases, and when housing sales increase, currency value increases. On the other hand, a negative trade balance can cause the currency’s value to decrease. In the above list are a few ways forex traders can examine retail sales reports. Is this something you can profit from? Keep an eye out. It is best to start with the previous month’s record. It is possible to use fundamental calendars for this purpose. The previous and current data gap can be useful if you trade a currency pair.
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