Time of release: 05/12/2011 12:30 GMT, 8:30 EST

Household consumption in the U.S. is expected to increase another 0.6% in April, and the ongoing expansion in private sector spending is likely to reinforce an improved outlook for the world's largest economy as it remains one of the leading drivers of growth. In light of the recent developments, the Federal Reserve may continue to raise its fundamental assessment for the nation, and the central bank may look to gradually normalize monetary policy towards the end of the year as growth and inflation gathers pace. However, the protracted recovery in the labor market could lead the FOMC to retain its zero interest rate policy throughout 2011, and Fed Chairman Ben Bernanke may continue to talk down speculation for higher borrowing costs in an effort to encourage a sustainable recovery.

The rebound in household confidence paired with the ongoing expansion in consumer credit certainly reinforces an improved outlook for retail sales, and private sector spending may continue to gather pace throughout 2011 as labor conditions gradually improve. However, as the economic recovery slows, subdued wage growth paired with higher consumer prices could dampen private sector spending, and households may look to increase their rate of savings as the economic outlook remains clouded with high uncertainty. In turn, the Fed may retain a dovish outlook for monetary policy over the coming months, and Chairman Bernanke may look to support the real economy throughout the year in order to balance the downside risks for the country.

Projections for a 10th consecutive rise in retail spending certainly encourages a bullish outlook for the greenback, and price action following the release could set the stage for a long U.S. dollar trade as growth prospects improve. Therefore, if sales increase 0.6% or greater in April, we will need a red, five-minute candle following the report to establish a sell entry on two-lots of EUR/USD. Once these conditions are met, we will set the initial stop at the nearby swing high or a reasonable distance after taking market volatility into account, and this risk will generate our first target. The second objective will be based on discretion, and we will move the stop on the second lot to breakeven once the first trade reach its mark in an effort to preserve our winnings.

On the other hand, Americans may have scaled back on spending as they cope with rising commodity prices paired with the ongoing weakness within the housing market, and a dismal sales report could dampen expectations for a rate hike later this year as the central bank continues to highlight the ongoing weakness within the real economy. As a result, if retail spending increases less than 0.3% or unexpectedly contracts from the previous month, we will carry out the same setup for a long euro-dollar trade as the short position laid out above, just in reverse.