Last month, July retail sales nudged up by 1.0% and beat estimates here. Ten out of the thirteen categories showed an increase, so that helped. But this time around, the estimate is for headline retail sales to show a 0.2% decline. That said, ex-autos is estimated to increase by 0.2% and the more important control group is expected to be higher by 0.3% again.

The hurdle doesn’t seem too high but spending might cool a little after the hotter-than-expected July performance. That especially as we are starting to build towards the holiday spending spree in the months ahead.

In any case, it’s not so much about the details of the data at this point. This is a market that is currently trending high on emotions ever since the whole carry trade fiasco at the end of July and start of August.

And in pricing in higher odds of a 50 bps move by the Fed since last week, it looks like traders are very much caught in that again.

As such, I would argue that the risks are asymmetric when it comes to the US retail sales today.

If the report is a poor one, it would just serve to exacerbate calls for a 50 bps rate cut tomorrow. That considering market players are wanting to try and force that on the Fed, or so it would seem.

But if the report is relatively in line with estimates and even perhaps showing that spending is doing fine, markets are likely to take that as a “carry on as you will” message. There might be some minor adjustments to the current pricing in favour of 25 bps but surely we won’t go as far as to pricing out the possibility of a 50 bps move.

Timiraos’ report last week certainly threw a curveball to markets. The Fed communique since Jackson Hole has been siding with a 25 bps move. But then now, traders have had to rethink whether 50 bps should still be in the picture.

And when you give traders an inch, they’ll happily take a mile. Even more so if they can lean on the data to back that up.

Either way, a poor report today will certainly make things very, very interesting going into tomorrow. That especially given the current market pricing. It will make this one of the most anticipated and watched Fed meetings in recent times.

This article was written by Justin Low at www.forexlive.com.