Retail Sales Awake USD Bears, AUD Jobs Next

A weak US retail sales report sparked a squeeze on the crowded US dollar trade but the move reversed within hours in a signal about the underlying dollar demand. Risk aversion remained the main theme with JPY leading and AUD lagging. The Aussie will remain in focus with the Dec jobs report due next. 1 of the 2 AUDJPY shorts hit its final target, while the 2nd trade is 20 pips away from hitting its final target for 180 pips. Both CADJPY are in progress. A new set of Premium Insights is due shortly ahead of the Aussie jobs figures.

There was no good news in the US retail sales report. Gasoline sales were expected to be weak because of falling prices but stripping out gas, autos and even the volatile building supplies category, sales were down 0.4% compared to +0.4% expected.

The reaction was swift with the US dollar down 50-70 pips right across the board. US dollar longs are an extremely crowded trade but the bottom was put in quick in quickly and it didn't take love to recover, and sometimes reverse the moves. USD/JPY hit a three week low at 116.06 only to rebound all the way to 117.46.

This is a pattern we've seen before. Traders see a USD-negative headline and act quickly but the moves aren't sustained. It's a great sign for US dollar bulls and underscores that even if the US economy isn't as strong as the Fed believes, it's still stronger than its rivals and a prime investment destination.

The focus shifts to a different dollar in the hours ahead with the Australian jobs report due at 0030 GMT. The consensus is for 5K new jobs but this report has been extremely volatile over the past few months and sparked a methodology change from the ABS.

The part-time/full-time breakdown is always important but because of the recent volatility in the report, the market may be skeptical of everything. That said, the Australian dollar has made somewhat of a stand at 0.8000 and that includes a big bounce from 0.8070 on Wednesday so a breakdown or rebound could have a lasting technical effect.