The US Census Bureau will publish retail sales for June on Wednesday at 12:30 GMT. The data are a good proxy of consumer demand and will be worth dissecting as the July FOMC meeting is approaching. Still, the report alone may not have enough power to reverse last week’s freefall in the US dollar even if the forecasts are encouraging.

US retail sales to show stronger growth

Weaker-than-expected US CPI inflation figures barely affected rate hike expectations for this year but added more credence to the 2024 rate cut narrative, pulling the US dollar index below the 100 psychological mark last week and to the lowest level in 15 months.

Fed policymakers have already entered a blackout period ahead of next week’s FOMC policy meeting. Therefore, they cannot use public messaging to reshape rate cut expectations and save the greenback again. That leaves US retail sales the only potential market-mover in town along with initial weekly jobless claims and monthly housing data.

Analysts estimate a slight acceleration to 0.5% month-on-month from 0.3% before. If materialized, that would be the second fastest growth in retail sales this year, with the core measure, which excludes automobile sales, expected to increase to 0.3% from 0.1% previously. A rebound in the data could signify a resilient consumption as the economy moves into the second half of 2023, where Fed policymakers foresee a relatively subdued economic growth.

Annual trend in retail sales is not encouraging

On an annual basis, retail sales have fallen substantially this year. Excluding the pandemic plunge, growth has diminished to the lowest level in three years in April to 1.20% to rise only moderately to 1.6% in May. Perhaps the slowdown in inflation and the stability in the labor market could prompt some extra spending during the summer months as the latest upbeat University of Michigan’s preliminary reading on consumer sentiment tried to message, though a monthly rebound could do little to change the cloudy trend.

Market reaction

Hence, the market reaction to the data might not be extreme, but a temporary upside correction could be possible in dollar/yen if the data beat expectations. The 140.00-141.00 resistance region could cap upside forces in this case ahead of the 142.00 barrier.

Alternatively, a disappointing report may bolster rate cut expectations and if the pair slips below the 138.00-137.00 support region in the aftermath, the sell-off could continue towards the 200-day exponential moving average and the 2023 support trendline at 136.35 and 135.35 respectively.