EURUSD Halts 3-Day Advance Ahead of the U.S. Consumer Confidence Report

Fundamental Outlook

Consumer confidence in the U.S. is expected to strengthen in August after falling to its lowest level since October 2009. Economists are forecasting the Confidence Board’s index to rise to 50.7. Despite expectations calling for an increase in consumer sentiment, fundamentals point to a decline in the report, thus, a disappointing result should not be ruled out as Americans face a weak labor market. As of late, nonfarm payrolls dropped 131K in July, while the private sector added a mere 71K amid forecasts for a 90K jump in payrolls. Looking ahead, economists are expecting nonfarm payrolls to drop another 100K in August, while calling for the unemployment rate to advance to 9.6 percent from 9.5 percent. The effects of uncertainty in the labor market spilled over in the recent new and existing home sales report for July which plunged 27.2 percent and 12.4 percent respectively. Meanwhile, the Dow Jones Industrial Average has lost approximately 4 percent since the end of July. It is also worth noting that tomorrow’s report trails the U. of Michigan confidence report in which the final reading was revised lower to 68.9 from 69.6 the reading prior; however, the final reading was higher than July’s figures. Thus, I do not totally rule out the report being released in line with economists forecasts. At the same time, a surprised reading greater than expectations in conjunction with a lower revision for July will balance out and add to the dour outlook for the U.S., and lead traders to seek safety. This will in turn validate my EURUSD short position.

Technical Outlook

Charts Created Using FXCM’S Strategy Trader

EUR/USD: After breaking below the broader and narrow ranges, the pair looks poised to test 1.2500 for near term support. Indeed, I have been short the pair since 1.3100, and as of late, I have moved my stop down to 1.2900 to lock in some additional losses. At the same time, the pair has struggled to break back above the 50-day where it has found major resistance. Risks to the downside remain, with price action capped by 1.2800.

Written by Michael Wright, Currency Analyst

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Michael Wright is the author of FX Headlines, Fundamentals vs. Technical’s, Weekly Spotlight, and Forex Trading Weekly Forecast