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US retail sales: Traders need something to sink their teeth into

Unfortunately for traders, today’s “Fed Speaker Roadshow” hasn’t led to a major reaction in the US dollar. Disappointingly, Fed Chairwoman Janet Yellen refrained from discussing the economy and monetary policy despite speaking at the “Conference on Monetary Policy Implementation in the Post-Crisis Period” (no clue how she managed that one).

Meanwhile, St. Louis Fed President Bullard gave his usual “on one hand…” / “on the other hand…” mixed outlook, bringing to mind the exasperated US President Harry Truman’s demand for a one-handed economist on his staff. Markets have also heard Richmond Fed President Lacker strike a modestly hawkish tone and uber-dove Charles Evans flip back to dovish after a brief dalliance with some neutral comments earlier in the week. On the whole, Fed speakers so far have stuck to the script, leaving traders little reason to adjust their “likely but not inevitable” expectation for a December rate hike.

Coming up, we’ll hear the latest views from New York Fed President Dudley (12:15 ET) and Fed Vice Chair Fischer (18:00 ET), but it’s looking more and more likely that the primary catalyst for the dollar ahead of the weekend will be tomorrow’s retail sales report. Traders are expecting a 0.3% gain in retail sale month-over-month, with “core” retail sales (filtering out automobile purchases) expected to rise at 0.4% m/m.

These expectations seem well-anchored. On the optimistic side, we saw gasoline prices stabilize in October and the iPhone 6 launch in late September, both of which point to a solid reading. Conversely, Thomson Reuters “October Same Store Sales Review” found that 75% of retailers missed their estimates for same store sales and the Same Store Sales Index dipped -0.2% for the month.

As always though, there is the capacity for a surprising reading. If we see a better-than-expected report ( 0.3% m/m or more on a headline basis), it would bolster the case for a December rate hike and likely drive the US dollar higher. On the other hand, a disappointing report could cool the optimism over the US economy, potentially leading to near-term dip in the greenback.

Either way, traders are eagerly looking forward to a substantial economic report to sink their teeth into.

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