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EURUSD: Trading the U.S. Consumer Confidence Report

EURUSD: Trading the U.S. Consumer Confidence Report

2012-08-28 02:00:00
David Song, Strategist
Share:

Trading the News: U.S. Consumer Confidence

What’s Expected:

Time of release: 08/28/2012 14:00 GMT, 10:00 EDT

Primary Pair Impact: EURUSD

Expected: 66.0

Previous: 65.9

DailyFX Forecast: 65.0 to 68.0

Why Is This Event Important:

The Conference Board’s Consumer Confidence survey is expected to increase to 66.0 from 65.9 in July and the ongoing improvement in household confidence may prop up the U.S. dollar as it dampens the Fed’s scope to expand its balance sheet further. Although the FOMC Minutes heightened speculation for another large-scale asset purchase program, the central bank may preserve its current policy over the medium-term as the world’s largest economy gets on a more sustainable path.

Recent Economic Developments

The Upside

Release

Expected

Actual

Durable Goods Orders (JUL)

2.5%

4.2%

Advance Retail Sales (JUL)

0.3%

0.8%

Change in Non-Farm Payrolls (JUL)

100K

163K

The Downside

Release

Expected

Actual

Housing Starts (JUL)

756K

746K

Consumer Credit (JUN)

$10.250B

$6.459B

Average Hourly Earnings (YoY) (JUL)

1.7%

1.7%

The ongoing expansion in private sector consumption paired with the uptick in job growth certainly encourages a positive outlook for household sentiment, and a rise in the Conference Board’s survey may increase the appeal of the USD as it curbs bets for QE3. However, subdued wage growth along with the ongoing slack in the housing market may continue to drag on consumer confidence, and a dismal print may spark a bearish reaction in the greenback as it fuels speculation for additional monetary support.

Potential Price Targets For The Release

EURUSD_Trading_the_U.S._Consumer_Confidence_Report_body_ScreenShot132.png, EURUSD: Trading the U.S. Consumer Confidence Report

As the EURUSD remains capped by the 100-Day SMA (1.2604), the pair appears to be carving a lower top going into September, and the euro-dollar may threaten the ascending channel carried over from July as the downward trend from 2011 continues to take shape. In turn, the pullback from 1.2588 may turn into a larger reversal, but a dismal print may trigger a run at the 1.2600 figure as it raises the scope of seeing additional monetary support.

How To Trade This Event Risk

A second consecutive rise in household sentiment instills a bullish outlook for the greenback as it raises the outlook for growth, and a positive development may pave the way for a long U.S. dollar trade as market participants scale back bets for QE3. Therefore, if we see a print of 66.0 or higher, we will need a red, five-minute candle following the release to generate a sell entry on two-lots of EURUSD. 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 establish 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 hits its mark in an effort to lock-in our gains.

In contrast, slowing wage growth along with the ongoing weakness in the housing market may continue to drag on household sentiment, and a dismal confidence report may weaken the greenback as it raises the case for additional monetary support. As a result, if the survey falls short of market expectations, we will implement the same strategy for a long euro-dollar trade as the short position mentioned above, just in the opposite direction.

Impact that the U.S. Consumer Confidence survey has had on USD during the last month

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

JUL 2012

7/31/2012 14:00 GMT

61.5

65.9

+24

+11

July 2012 U.S. Consumer Confidence

EURUSD_Trading_the_U.S._Consumer_Confidence_Report_body_ScreenShot131.png, EURUSD: Trading the U.S. Consumer Confidence Report

Household sentiment unexpectedly picked up in July, with the Conference Board’s index advancing to 65.9 from a revised 62.7 in June, while inflation expectations for the next 12-months climbed to 5.4% from 5.3% during the same period. Despite the better-than-expected print, the dollar struggled to hold its ground amid the rise in risk sentiment, but we saw the EURUSD consolidate going into the close as the pair ended the day at 1.2303.

--- 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

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

Meet the DailyFX team in Las Vegas at the annual FXCM Traders Expo, November 2-4, 2012 at the Rio All Suite Hotel & Casino. For additional information regarding the schedule, workshops and accommodations, visit the FXCM Trading Expo website.

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

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