trading news reports

Rising Consumer Confidence May Spark Bullish Dollar Reaction

Monday, 29 December 2008 14:07:20 GMT  |  John Rivera, Currency Analyst

The Conference Board’s consumer confidence index is expected to slightly improve to 45.5 in December from 44.9 the month prior.

Trading the News: US Consumer Confidence

 

What’s Expected

Time of release:                  12/30/2008 15:00 GMT, 10:00 EST

Primary Pair Impact :          EURUSD

Expected:                              45.5

Previous:                               44.9




How To Trade This Event Risk

The Conference Board’s consumer confidence index is expected to slightly improve to 45.5 in December from 44.9 the month prior. It would mark the second straight month of improving sentiment on the back of  falling gasoline prices and growing confidence that the banking woes are behind us. However, the mounting job losses for the economy which saw the economy lose over a half million jobs in November and is expected to drop another 475,000 in December has tempered optimism. Despite last month’s improvement in outlook consumers were still less likely to purchase a car, home or major appliance in the next six months. If consumers continue to retrench, which was the case during the holiday season, then the growth outlook for 2009 will significantly decline. Anticipation of a rebound by the end of 2009 may be a little premature as the economy continues to battle falling home values and declining manufacturing activity. Indeed, the S&P Schiller home price index and the Chicago PMI manufacturing index are both due to cross the wires before the consumer confidence report and expectations are that they will show further declines in both areas.

The prospect of a $500-$700 billion fiscal stimulus plan in early next year and the continued easing of inflation may lead to a second straight month of improved sentiment. . Therefore, a better than expected reading would favor a long dollar trade (short EURUSD), and we will look for print above 50.0 and a corresponding red, five-minute candle following the release to generate a short trade on two lots of the euro-dollar. Our initial stop will be placed at the nearby swing high (or reasonable distance), and our first target will equal this risk. Our second objective will be based on discretion and to preserve profit, we will move the stop on the second lot up to break even when the first lot hits its target.

However, a fall in sentiment will continue to fuel the dour outlook for the U.S. economy and add to the recent dollar weakness. Therefore we would look for a for a drop below the 40.0 to trigger dollar bearish sentiment and we will follow the same strategy for the short dollar trade as the long position mentioned above, just in reverse.

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