What’s Expected
Time of release: 05/29/2008 08:00 GMT, 04:00 EST
Primary Pair Impact : EURUSD
Expected: --
Previous: 41.8

How To Trade This Event Risk

The Euro-Zone Retail PMI has been a mixed bag over the last three releases in terms of price action. A record low in April saw a sharp move lower but previous releases lack any punch. Further deterioration in demand may provoke a similar reaction in price volatility as the gauge falls deeper into contraction. European consumer demand will be the critical component in determining whether the region can avoid a significant downturn. The strong Euro has made European goods less competitive abroad and sales continue to slow. The recent Euro-Zone current account showed a drop of over nearly six billion in inflows from goods sold. Companies are already seeing their margins shrink as record oil prices and rising raw material costs continue to eat away profits, falling to 39.0 in April from a recent high of 46.5 in January. The labor market which has been strong, especially in the regions largest economy Germany, may start to weaken as companies are forced to cut costs. The German employment report will precede the retail numbers by five minutes and can potentially have a significant impact on price action. The expectations are that the German labor market has remained strong with unemployment falling to 7.8% from 7.9% in April and total unemployment falling by 25,000. Any signs that the labor market is faltering combined with further weakness in consumer consumption will create fear that the European economy is succumbing to the headwinds from the U.S..

Retail sales could potentially improve, as last month saw declines in food and toiletries, which are non-discretionary items that should rebound. Additionally, the labor market has remained strong and should provide enough support for spending to bounce from all time lows. Therefore, we will look for an improvement to 48 and cooperating German labor data for a bullish trade. With the right data mix, we will look for a green bar to confirm entry on two lots with a stop below the nearby swing low (or reasonable distance). First target will equal the risk taken and the second will be based on discretion. To preserve profit, we will move the stop on the second lot to breakeven when the first hits its target.

Inflation has continued to eat at consumers purchasing power, and with oil continuing to set new record highs further deterioration of demand is very possible. We will look for consumption to remain at or fall below last months all time recorded low for a short; and we will follow the same setup as above, just reversed.

Jamie Saettele is a Technical Currency Analyst for FXCM.