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EUR/USD Risks Larger Pullback as U. of Michigan Confidence Rebounds

By , Currency Analyst  and Gregory Marks
11 April 2014 08:00 GMT

EUR/USD Risks Pullback U of Michigan Confidence Rebounds

- U. of Michigan Confidence to Improve for Second Time in 2014.

- Household Sentiment Survey Has Held Above 80.0 Since November.

Trading the News: U. of Michigan Confidence

A rebound in the U. of Michigan Confidence survey may spur a larger pullback in the EUR/USD as it raises the outlook for the U.S. economy.

What’s Expected:

EUR-USD-Risks-Larger-Pullback-U-of-Michigan-Confidence-Rebounds-0214_body_ScreenShot061.png, EUR/USD Risks Larger Pullback as U. of Michigan Confidence ReboundsEUR/USD Confidence

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Why Is This Event Important:

Indeed, positive developments coming out of the world’s largest economy may put increased pressure on the Federal Open Market Committee (FOMC) to normalize monetary policy sooner rather than later, but it seems as though Fed Chair Janet Yellen remains reluctant to move away from the zero-interest rate policy as the central bank head continues to highlight the ongoing slack in the real economy.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Consumer Credit (FEB)

$14.000B

$16.489B

Durable Goods Orders (FEB)

0.8%

2.2%

Advance Retail Sales (MoM) (FEB)

0.2%

0.3%

The resilience in private sector consumption along with the pickup in consumer credit may generate a meaningful rebound in household sentiment, and an upbeat print may generate a bullish reaction in the USD as it limits the Fed’s scope to retain its highly accommodative policy stance for an extended period of time.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Non-Farm Payrolls (MAR)

200K

192K

Average Hourly Earnings (YoY) (MAR)

2.3%

2.1%

Pending Home Sales (MoM) (FEB)

0.2%

-0.8%

However, subdued wage growth paired with the persistent slack in the real economy may spark a further downturn in consumer confidence, and a dismal development may heighten the bearish sentiment surrounding the greenback as the FOMC retains a rather cautious outlook for the region.

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How To Trade This Event Risk(Video)

Bullish USD Trade: Household Sentiment Rises to 81.0 or Higher

  • Need to see red, five-minute candle following the release to consider a short trade on EUR/USD
  • If market reaction favors a long dollar trade, sell EUR/USD with two separate position
  • Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward
  • Move stop to entry on remaining position once initial target is hit; set reasonable limit

Bearish USD Trade: Consumer Confidence Survey Disappoints

  • Need green, five-minute candle to favor a long EUR/USD trade
  • Implement same setup as the bullish dollar trade, just in the opposite direction

Potential Price Targets For The Release

EUR/USD Daily

EUR/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Outlook Remains Bullish After Carving Higher Low around 1.3650-60
  • Break of Bearish Trend Favors Topside Targets as RSI Preserves Long-Term Upward Momentum
  • Interim Resistance: 1.3960-70 (61.8% expansion)
  • Interim Support: 1.3650 (78.6 expansion) to 1.3660 (23.6 retracement)

Impact that the U. of Michigan Confidence has had on EUR/USD during the last release

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

MAR P

2014

03/14/2014 13:55 GMT

82.0

79.9

+10

+3

March 2014 U. of Michigan Confidence Survey

EUR/USD Chart

The University of Michigan Confidence survey missed estimates last month to come in at 79.0 vs. 82.0 as surveyed by economists. The figure has been on the general decline since hitting a high over summer not seen since 2007. February’s reading led to a slight uptick in the EUR/USD, but small move did not hold into the close.

--- Written by David Song, Currency Analyst and Gregory Marks

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

To be added to David's e-mail distribution list, please follow this link.

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11 April 2014 08:00 GMT