Trading the News: Euro-Zone Sentix Investor Confidence
Time of release: 02/09/2009 09:30 GMT, 04:30 EST
Primary Pair Impact : EURUSD
Expected: -30.0
Previous: -34.4
January 2008 Euro-Zone Sentix Investor Confidence
|
The Euro-Zone Sentix investor confidence survey snapped back after falling for the past seven-months as the index jumped to -34.4 from record low reading of -42.3 in January. Meanwhile, the |
|
December 2008 Euro-Zone Sentix Investor Confidence
|
Investor confidence in the Euro-Zone slipped to a record low in December as the European Central Bank forecasts the annual rate of growth to contract 0.5% in 2009. The headline reading for the Sentix survey plunged to -42.3 from -36.4 in November, while a gauge for future expectations ticked higher to -42.00 from -42.75. Deteriorating fundamentals paired with financial uncertainties have weighed on the outlook for growth throughout the region, and as the economy faces a recession for the first time in over a decade, European policy makers may continue to ease policy further as price growth falters. Falling commodity prices paired with the downturn in the global economy have certainly tapered the upside risks for inflation, and as the central bank maintains a 2% target for price stability. |
|
What To Look For Before The Release
|
In an effort to mitigate risk exposure, we will monitor market depth for EUR/USD ahead of the release. Our objective is to observe normal to high (or increasing) EUR/USD liquidity, which could help to shed some light the market-moving potential of the release as well as the likely directional bias. Overall, increasing volume will telegraph likely momentum behind the move following the release. An imbalance in available liquidity on the bid versus the offer side of the market (or vise versa) will tell us what direction major institutions are likely favoring ahead of the announcement. If the offer side sees deeper markets, this means banks are selling EUR/USD and we will look to follow their lead and favor the short side. Alternatively, we will look for opportunities to go long if liquidity is deeper on the bid side. The absence of a clear imbalance (at least 2:1) or a weak uptick in volumes will signal a need for added confirmation before a trade is placed. |
|
How To Trade This Event Risk
Investor confidence in the Euro-Zone is expected improved in February as policy makers throughout the region increased their efforts to stimulate the ailing economy, but as global trade conditions falter, the odds for a marked recovery in sentiment remains unlikely. Fading demands from abroad pushed the trade deficit to -4.9B from a revised reading of -2.1B in October as exports fell at its fastest pace in eight-years, and conditions are likely to get worse as the International Monetary Fund forecasts the annual rate of growth to contract 2.0% in 2009. As the region is expected to face its worst recession since World War II, public and private entities are likely to scale back on spending in an effort to reduce costs, and as global credit conditions remain far from normal, investment lending practices are likely to remain subdued throughout the year. In addition, fears of a deepening recession paired with financial uncertainties continued to drag on the economy as the European Commission reported a record drop in economic confidence, while a separate report by the European Union showed a weakening outlook for price growth. The Euro-Zone CPI estimate slipped to 1.1% from 1.6% in December to reach its lowest level since the single-currency was introduced in 1999, while the core measure for inflation continued to fall below the European Central Bank’s 2% target as the annual rate dropped to 1.8% from 1.9% in November. As price growths falls below the desired level, policy makers are expected to lower the benchmark interest further in March as they maintain their one and only mandate to ensure price stability. After leaving rates on hold during this month’s meeting, ECB President Trichet explicitly stated that there is a chance for a 50bp rate cut next month, but went on to say that adopting a zero interest rate policy for the 16 economies operating under the euro is not ‘appropriate at this stage.’ As a result, expectations for lower borrowing costs are likely to stoke increased selling pressure for the euro during the month, and as the central bank is scheduled to revise their growth and inflation forecasts for the year at the next policy meeting, signs of a deepening recession would certainly reinforce a bearish outlook for the single currency going forward.
Expectations for a rise in investor confidence clearly favors a bullish euro trade for the given event risk, and an in-line print or a survey reading above -30.0 would support a long euro trade following the release. As a result, we will look for green, five-minute candle following the improved release to confirm a buy entry on two lots of EURUSD, and once these conditions are met, we will place our initial stop at the nearby swing low (or reasonable distance) and this risk will determine our first target. Our second target will be based on our discretion, and to preserve our profits, we will move the stop on the second lot to breakeven once the first trade reaches its target.
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.
Learn forex trading with a free practice account and trading charts from FXCM.
