U.S. Exceptionalism Not Done Yet? Big Retail Print Could Wreck Bearish Dollar Bets

• Retail sales seen rising 1.3% on auto-related strength
• Control group may lift 0.6%, boosting GDP nowcasts
• USD/CAD, USD/CHF show reversal signals ahead of key events
• Powell unlikely to shift tone, but price action could

Summary

The end of U.S. economic exceptionalism seems to be almost uniformly expected, creating a dangerous scenario for markets that have run hard in anticipation should new information arrive that questions the prevailing narrative.

Wednesday’s U.S. retail sales report carries the potential to do just that, with front-loading of purchases ahead of Donald Trump’s Liberation Day tariff announcement set to juice turnover levels temporarily. While that’s only likely to be a short-lived, it may be enough to see recession fears ebb momentarily, increasing the risk of a short squeeze in the U.S. dollar.

With two obvious reversal patterns completed on Tuesday, that puts focus on USD/CAD and USD/CHF heading into Wednesday’s session.

U.S. Retail Sales Preview

Source: TradingView

Details on what’s expected from the retail sales report are found above. Total sales are tipped to surge 1.3% on an expected acceleration in auto-related spending. Of more importance to U.S. GDP, control group spending is seen lifting 0.6% following a chunky 1% gain in February—an outcome that will likely see the Atlanta Fed’s GDPNowcast model flip positive for Q1 once trade-related abnormalities in bullion imports are removed. Even if the spending surge reverses sharply in April, a strong March report may be enough to shake out some of the more pessimistic views on the U.S. economic outlook.

Source: Atlanta Fed

Powell Speech Unlikely to Shift the Dial

While U.S. Federal Reserve Chair Jerome Powell will also speak on Wednesday, given the extreme amount of uncertainty that exists around U.S. trade policy, it’s hard to see him deviating greatly from the views offered earlier this month. Powell will likely reassure markets that the Fed stands ready to act if and when economic or market risks emerge, but he—like us—is waiting for hard evidence that elevated uncertainty is impacting actual activity levels, not just surveys.

USD/CAD: Reversal Risks Grow

When looking at USD/CAD, you can’t ignore the importance of Wednesday’s Bank of Canada (BoC) interest rate decision. Despite the soft inflation report released Tuesday, the bank’s preferred underlying measures remain elevated, averaging 2.85%. As such, the view offered earlier this week—that the BoC can afford to hold rates steady—remains intact.

Source: TradingView

The most obvious feature of the USD/CAD daily chart is the completion of the three-candle morning star on Tuesday, a pattern often observed around swing lows. Tuesday’s bullish candle also saw the price reclaim the April 2024 high of 1.3947, making that an immediate reference point for traders screening for potential setups.

If the morning star proves to be a reliable signal, the 200-day moving average at 1.4003 and April 2 low of 1.4027 should be in focus for bulls, with a clean break above the latter likely to open the door for a far more meaningful push higher. However, if the pair were to reverse back through 1.3947, it may offer encouragement for bears to seek a retest of the lows set earlier this week.

Whichever way the price action evolves, 1.4027 can be used to build setups around, allowing for a stop to be placed on the opposite side to entry to protect against reversal.

RSI (14) and MACD are providing firmly bearish momentum signals—favouring selling rallies—although there are signs downside pressure may be starting to ease.

USD/CHF: Watching .8250 for Confirmation

Source: TradingView

The morning star pattern risk for USD/CHF flagged yesterday played out nicely, seeing the pair push back above .8200 during the session. However, to get excited about an extension of the corrective bounce, it would be nice to see the pair push above .8250 meaningfully considering bullish moves have stalled there over the past three sessions.

If the morning star proves accurate, the December 2023 low of .8333 looms as a potential trade target. Alternatively, if the price cannot sustain a push above .8250, it may encourage bears to reset shorts with a stop above seeking a return to .8100.

Momentum indicators remain in bearish territory, favouring downside over upside. However, with RSI (14) breaking its downtrend, selling pressure is showing signs of easing.

-- Written by David Scutt

Follow David on Twitter @scutty