How To Trade This Event Risk
The preliminary reading of the U. of Michigan consumer confidence survey for September is expected to slip to 65.0 from a final reading of 70.3 in August as growth prospects deteriorate throughout the second half of the year. Growth concerns for the world’s largest economy have certainly escalated as payrolls fell for the ninth consecutive month in September, which led consumers to cutback on discretionary spending despite the drastic fall in gas prices. In August, durable goods orders fell 4.5% despite expectations for a 1.9% gain, and was followed by a 0.7% declined in chain-store sales. Moreover, just yesterday we saw retail spending decline for the third straight month as the index plunge another 1.2% in September - highlighting the worse streak since record keeping began in 1992. The data suggests that consumers are in fact alarmed by the recent downturn in the domestic and global economy, and the growth outlook may weaken further as private-sector consumption in the U.S. accounts for more than two-thirds of GDP. Meanwhile, the speech by Fed Chairman Bernanke at the New York Economic Club continued to highlight ongoing weakness in the economy as he does not expect the global financial market to recover immediately despite the extraordinary efforts by central bank all over the globe, and noted that economic activity within the U.S. may weaken further as export demands falter.
Trading the given event risk may not be as clear cut as some of our other trades due to increased volatility in the markets, but a less than expected decline in consumer confidence could help to brighten the growth outlook in the near-term. As a result, a reading of 68.0 or above would favor a short EURUSD trade, and we will look for a red, five-minute candle to generate an entry on two lots of the EURUSD. Our initial stop will be placed at the nearby swing (or a reasonable distance), and this risk will determine our first target. Our second target will be based on discretion, and in order to preserve our profits, we will move the stop on the second lot when the first half of the trade reaches its target.
On the other hand, arguments have been made that the U.S. economy has already slipped into a recession, and a dip in confidence could spark a bearish outlook for the greenback. Therefore, a downturn in sentiment would favor a long EURUSD trade, and we will follow the same strategy as the long mentioned above, just in reverse.
