USD Struggles After Retail Sales Ahead of Bernanke

A soft US retail sales report sparked speculation that Fed Chief Ben Bernanke will indicate the willingness to do more in Tuesday's testimony The yen was the best performer while the Canadian dollar lagged. The RBA minutes are the highlight of Asia-Pacific trading. Ashraf has shown in todays piece how employment in the retail trade industry began to peak before the retail sales in the last 2 recessions. Details on the latest Premium Insights are show below.

US retail sales contracted 0.5% in June, much worse than the +0.2% consensus estimate. Excluding autos, gas and other volatile numbers revealed similar weakness. The June decline marked three consecutive months of negative readings for the first time since 2008 and in a sign that has almost always pointed to a recession, historically.

After the report, numerous analysts downgraded Q2 and Q3 growth projections with many falling below the 1.5% stall speed that will surely worry the Fed. In addition, the IMF lowered the global 2013 growth forecast to 3.9% from 4.1%. No major economies escaped lower forecasts with some European and emerging markets hit particularly hard.

Rather than a round of risk aversion, the US dollar sold off on the news. USD/JPY fell below 79.00 and EUR/USD rebounded to 1.2290. The euro gained further support from a WSJ story that concluded that the ECB is likely to lose a battle to force Spanish banks to take debt haircuts in exchange for bailouts.

The sentiment overwhelmed the lone upbeat indicator the Empire Fed. The manufacturing index rose to 7.39 compared to 4.00 expected.

In the upcoming session, the focus shifts to minutes of the most recent RBA meeting, which will be released at 2130 GMT. The RBA will likely emphasize the wait-and-see attitude of the statement but comments on inflation, growth and housing will also be worth watching. In addition, any insight into the true strength of the Chinese economy could roil broader markets.

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-AB