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EURUSD: Trading the U.S. Consumer Confidence Report

By , Currency Analyst
27 March 2012 09:00 GMT

Trading the News: U.S. Consumer Confidence

What’s Expected:

Time of release: 03/27/2012 14:00 GMT, 10:00 EST

Primary Pair Impact: EURUSD

Expected: 70.1

Previous: 70.8

DailyFX Forecast: 68.0 to 70.3

Why Is This Event Important:

The Conference Board’s Consumer Confidence survey is expected to fall back from a one year high in March and the development may spark a bearish reaction in the U.S. dollar as the Federal Reserve keeps the door open to expand monetary policy further. Indeed, Fed Chairman Ben Bernanke talked up speculation for more quantitative easing in an effort to balance the risks surrounding the region, but we may see a growing rift within the Federal Open Market Committee as central bank officials take note of the more robust recovery.

Recent Economic Developments

The Upside

Release

Expected

Actual

Advance Retail Sales (FEB)

1.1%

1.1%

Change in Non-Farm Payrolls (FEB)

210K

227K

Consumer Credit (JAN)

$10.450B

$17.776B

The Downside

Release

Expected

Actual

Pending Home Sales (MoM) (FEB)

1.0%

-0.5%

New Home Sales (MoM) (FEB)

1.3%

-1.6%

Personal Income (JAN)

0.5%

0.3%

The larger-than-expected rise in employment paired with the expansion in consumer credit should help to prop up household sentiment, and an above-forecast print could spark a short-term reversal in the EURUSD as market participants scale back speculation for another large-scale asset purchase program. However, subdued waged growth paired with the ongoing weakness in the housing market may drag on consumer confidence, and we may see the Fed continue to shore up the real economy as it aims to encourage a stronger recovery. In turn, a dismal confidence report could prop up the EURUSD, and we may see the pair make another run at the 50.0% Fibonacci retracement from the 2009 high to the 2010 low around 1.3500 as the Fed talks up speculation for QE3.

Potential Price Targets For The Release

EURUSD_Trading_the_U.S._Consumer_Confidence_Report_body_ScreenShot064.png, EURUSD: Trading the U.S. Consumer Confidence Report

How To Trade This Event Risk

Forecasts for a decline in household sentiment casts a bearish outlook for the greenback, but a positive development could pave the way for a long U.S. dollar trade as the data dampens speculation for additional monetary support. Therefore, if the index unexpectedly advances to from the previous month, we will need to see a red, five-minute candle subsequent to the release to generate a sell entry on two-lots of EURUSD. Once these conditions are met, we will set the initial stop at the nearby swing high or a reasonable distance from the entry, and this risk will establish 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 reaches its mark in order to preserve our profits.

On the other hand, household may become less optimistic towards the economy amid the ongoing slack within the private sector, and a dismal confidence report could weigh on the greenback as market participants raise bets for QE3. As a result, if sentiment weakens from the previous month, we will implement the same strategy for a long euro-dollar trade as the short position outlined above, just in the opposite direction.

Impact that the U.S. Consumer Confidence survey has had on USD during the last month

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

FEB 2012

2/28/2012 15:00 GMT

63.0

70.8

-9

+26

February 2012 U.S. Consumer Confidence

EURUSD_Trading_the_U.S._Consumer_Confidence_Report_body_ScreenShot063.png, EURUSD: Trading the U.S. Consumer Confidence Report

Household sentiment climbed to a one year high in February, with the Conference Board’s index advancing to 70.8 from a revised 61.5 in the previous month, and we should see the Federal Reserve continue to scale back its dovish tone for monetary policy as the fundamental outlook for the world’s largest economy improves. However, the initial reaction to the confidence report was short-lived, with the EURUSD climbing back above 1.3400, and the greenback lost ground throughout the North American trade as the pair ended the day at 1.3456.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong

To be added to David's e-mail distribution list, send an e-mail with subject line "Distribution List" to dsong@dailyfx.com.

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27 March 2012 09:00 GMT