For second day in a row we have some positive fundamental data coming from the US.

This time it's in the form of consumer spending figures - our retail sales for July. Consumers spent more on electronics, furniture, clothing, as well as gasoline and the increased spending helps ease some of the concerned that consumers are retrenching in the midst of a high unemployment rate as well as a wobbly economic recovery.

Headline sales grew by 0.5% in July and June's retail sales were revised higher to show a 0.3% gain compared to the originally estimated 0.1% gain. Stripping out auto sales from the equation we also had core sales rising 0.5%. Auto sales were up 0.4%.

Having a look at the chart of retail sales we have bucked the downtrend we had seen in sales between February and May, and in monthly terms we have seen pick up the last 2 months. The annual pace of sales has also returned to a positive slope.

If the improvement in sales is going to become a trend then we may have thee recovery picking up steam in the second half of the year and therefore this this report will act to help investor sentiment on Wall Street but also help calm nerves around the globe, as investors and traders had begun to seriously worry about a double dip recession in the United States.

The news helped S&P 500 futures to reach a new intraday high prior to the cash open up equities and we might anticipate some risk appetite in currency markets which would help higher-yielding currencies at the expense of our safe havens.

See Today's Technical Update: EUR/USD Attempting a Bullish Breakout after Decent US Retail Sales Figures

Consumers Key to Recovery - Jobs Key to Consumers

The key to the economy - to the US recovery - will be if consumers can begin spending again, as 70% of GDP revolves around personal consumption. We had a better NFP report in July and our recent string of jobless claims reports has showed a labor market that is improving.  It's been three or four weeks now that we've been at the very important for hundred thousand level, and yesterday's jobless claims report was one of the factors in helping to spark yesterday's rally on Wall Street. Perhaps the US consumers are sensing this improvement and are more willing to go out and shop.

Here's a look at jobless claims:

As you can see from the chart jobless claims have begun to trend downward over the past few months, if we look at the red four-week moving average we can see that it is in a negative slope, and that is a positive development for us watching the labor market.

Here to if we continue to see this trend continue that can be the type of fundamental data needed to help bring the US recovery back on track and to help stem some of the recent worries and selloffs we've seen in US equities.

For now this will not benefit the US dollar because it implies risk appetite and we will see higher yielding currencies such as the euro and pound gained against the US dollar. However the greenback can see gains against other safe haven rivals such as the Japanese yen and Swiss franc.

We now await further clues about the US consumer in the form of the preliminary reading of the UMich Consumer Sentiment index for August

Nick Nasad
Chief Market Analyst