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EUR/USD: Trading the U. of Michigan Confidence Survey

EUR/USD: Trading the U. of Michigan Confidence Survey

2011-10-13 20:01:00
David Song, Currency Strategist

Trading the News: U. of Michigan Confidence Survey

What’s Expected:

Time of release: 10/14/2011 13:55GMT, 9:55 EST

Primary Pair Impact:EURUSD

Expected: 60.2

Previous: 59.4

DailyFX Forecast: 58.0 to 62.0

Why Is This Event Important:

The U. of Michigan Confidence survey is expected to increase to 60.2 in October from 59.4 in the previous month, and the ongoing improvement in household sentiment may spark a bullish reaction in the USD as it encourages an improved outlook for the world’s largest economy. As the recent batch of economic developments raise the prospects for future growth, the Federal Reserve may endorse a wait-and-see approach throughout the remainder of the year, and the FOMC may see scope to start normalizing monetary policy next year as the central bank expects the recovery to gather pace. However, we may see the Fed continue to talk up speculation for additional monetary support given the growing risk of a double-dip recession, and the central bank may increase its efforts to stimulate the ailing economy as it aims to balance the risks for the region.

Recent Economic Developments

The Upside




Change in Non-Farm Payrolls (SEP)



ICSC Chain Store Sales (YoY) (SEP)



Domestic Vehicle Sales (SEP)



The Downside




Consumer Credit (AUG)



Personal Income (AUG)



Consumer Price Index (YoY) (AUG)



The ongoing expansion in private sector consumption paired with the faster pace of job growth foreshadows an improved outlook for household confidence, and a positive sentiment report may lead the EUR/USD to give back the advance from earlier this week as the fundamental outlook for the world’s largest economy improves. However, heightening price pressures paired with the slowdown in wage growth may weigh on consumer confidence, and a dismal U. of Michigan report could instill a bearish outlook for the greenback as market participants see the Fed easing monetary policy further over the coming months. In turn, the rebound from 1.3145 may accelerate over the next 24-hours of trading, and we may see the exchange rate may work its way back above the 61.8% Fibonacci retracement from the 2009 high to the 2010 low around 1.3880-1.3900.

Potential Price Targets For The Release

EURUSD_Trading_the_U._of_Michigan_Confidence_Survey_body_ScreenShot008.png, EUR/USD: Trading the U. of Michigan Confidence Survey

How To Trade This Event Risk

A rebound in household sentiment would raise the prospects for future growth, and the market reaction may pave the way for a long U.S. dollar trade as the fundamental outlook for the world’s largest economy improves. Therefore, if the index advance to 60.2 or higher in October, we will need a red, five-minute candle following the release to establish a sell entry on two-lots of EUR/USD. Once these conditions are met, we will set the initial stop at the nearby swing high or a reasonable distance from the entry, and this risk will generate our first target. The second objective will be based on discretion, and we will move the stop on the second lot to cost once the first trade reaches its mark in an effort to protect our gains.

On the other hand, heightening fears of a double dip recession paired with the slowdown in wage growth may impede on household sentiment, and a dismal print may drag on the exchange rate as it dampens the outlook for future growth. As a result, if the gauge weakens from the previous month, we will carry out the same setup for a long euro-dollar trade as the short position laid out above, just in the opposite direction.

Impact that the U. of Michigan Confidence survey has had on USD during the last month


Data Released



Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

SEP 2011

09/16/2011 13:55 GMT





September 2011 U. of Michigan Confidence Survey

Consumer confidence in the world’s largest economy bounced back from the lowest reading since November 2008, with the U. of Michigan sentiment survey advancing to 57.8 in September from 55.7 in the previous month. Although the rebound encourages an improved outlook for the region, households may turn increasingly pessimistic towards the economy in light of the slowing recovery, and the central bank may keep the door open to expand monetary policy further as the region faces a heightening risk of a double-dip recession. In turn, the Federal Reserve may look to ramp up its nonstandard measures over the coming months, and the central bank may show an increased willingness to conduct another round of quantitative easing in an effort to stem the downside risks for growth and inflation. The initial reaction was short-lived, with the EUR/USD slipping back below 1.3800, but the exchange rate tipped higher during the day to close at 1.3784.

EURUSD_Trading_the_U._of_Michigan_Confidence_Survey_body_ScreenShot007.png, EUR/USD: Trading the U. of Michigan Confidence Survey

--- Written by David Song, Currency Analyst

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

To be added to David's e-mail distribution list, send an e-mail with subject line "Distribution List" to dsong@dailyfx.com.

Questions? Comments? Join us in the DailyFX Forum

Join Currency Analyst David Song in the DailyFX Trading Room to cover the event LIVE!

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

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