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EUR/USD: Trading the Euro-Zone Sentix Investor Confidence Survey

EUR/USD: Trading the Euro-Zone Sentix Investor Confidence Survey

2011-03-04 21:37:00
David Song, Currency Strategist
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Trading the News: Euro-Zone Sentix Investor Confidence Survey

What’s Expected:

Time of release: 03/07/2011 9:30 GMT, 4:30 EST

Primary Pair Impact: EURUSD

Expected: 17.2

Previous: 16.7

DailyFX Forecast: 15.5 to 16.5

Why Is This Event Important:

The Sentix investor confidence survey is anticipated to increase to 17.2 in March from 16.7 in the previous month, which would be the highest reading since September 2007, and the rise in sentiment could spark a rally in the euro as growth prospects improve. In turn, the European Central Bank may lift the benchmark interest off the record-low at its next rate decision on April 7, and the near-term rally in the EUR/USD may gather pace going forward as market participants expect the Governing Council to reestablish its exit strategy over the coming months. However, as the region faces an uneven recovery, with the tough austerity measures bearing down on economic activity, the central bank may retain its wait-and-see approach throughout the first-half of the year as it aims to balance the risks for the euro-area.

Recent Economic Developments

The Upside

Release

Expected

Actual

EZ Household Consumption (4Q)

0.2%

0.4%

EZ Economic Confidence (FEB)

106.8

107.8

EZ ZEW Investor Confidence (FEB)

28.5

29.5

The Downside

Release

Expected

Actual

EZ Business Climate Indicator (FEB)

1.61

1.45

EZ Gross Fixed Capital Formation (4Q P)

0.4%

-0.6%

EZ Trade Balance s.a. (DEC)

-0.2B

-2.3B

As private sector spending accelerates, with household confidence improving, investor sentiment may continue to gather pace in 2011 as European policy makers raise their outlook for growth and inflation. However, as the expansion in global trade cools, with businesses scaling back on investments, confidence in the Euro-Zone may deteriorate over the coming months as the governments operating under the fixed-exchange rate system take unprecedented steps to balance the budget deficit. In turn, the ECB may see scope to support the real economy over the coming months, and a downturn in interest rate expectations is likely to weigh on the exchange rate as investors weigh the prospects for future policy.

Potential Price Targets For The Release

EURUSD_Trading_the_Euro-Zone_Sentix_Investor_Confidence_Survey_body_ScreenShot009.png, EUR/USD: Trading the Euro-Zone Sentix Investor Confidence Survey

How To Trade This Event Risk

Expectations for a third consecutive rise in investor sentiment certainly encourages a bullish outlook for the single-currency, and the market reaction following the release could set the stage for a long euro trade as investors speculate the ECB to normalize monetary policy over the coming months. Therefore, if the Sentix survey advances to 17.2 or higher in March, we will need to see a green, five-minute candle subsequent to the data to establish a buy entry on two-lots of EUR/USD. Once these conditions are met, we will set the initial stop at the nearby swing low or a reasonable distance from the entry, and this risk will generate our first objective. The second target 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 an effort to lock-in our profits.

On the other hand, investor sentiment may falter in March as European policy makers struggle to address the sovereign debt crisis, and the uncertainties surrounding the economic outlook may bear down on confidence as the risk for contagion intensifies. As a result, if the survey unexpectedly weakens from the previous month, we will carry out the same setup for a short euro-dollar trade as the long position laid out above, just in the opposite direction.

Impact that the Sentix Investor Confidence survey has had on EUR during the last month

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

Feb 2011

2/07/2011 9:30 GMT

14.0

16.7

-14

-6

February 2011 Euro-Zone Sentix Investor Confidence Survey

Investor confidence in the Euro-Zone advanced to a three-year high in February, with the Sentix survey increasing to 16.7 from 10.6 in the previous month, and economic conditions may continue to improve in 2011 as the recovery gathers pace. The breakdown of the report showed the gauge for the current situation increase to 21.25 from 14.00 in the previous month, while the index for future expectations advance to 12.25 from 7.25 during the same period. As growth and inflation picks up, the European Central Bank may look to reestablish its exit strategy later this year, and speculation for higher borrowing costs is likely to drive the euro higher over the near-term as investors weigh the prospects for future policy. The EUR/USD bounced back to 1.3601 following the release, but the rebound in the exchange rate was certainly short-lived as the pair ended the day at 1.3583.

EURUSD_Trading_the_Euro-Zone_Sentix_Investor_Confidence_Survey_body_ScreenShot010.gif, EUR/USD: Trading the Euro-Zone Sentix Investor Confidence Survey

Questions? Comments? Join us in the DailyFX Forum

View the Expo Presentation on ‘Trading the News’ For Additional Resources

To discuss this report contact David Song, Currency Analyst: dsong@dailyfx.com

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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