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Forex: EUR/USD- Trading the U.S. Consumer Confidence Report

Forex: EUR/USD- Trading the U.S. Consumer Confidence Report

David Song, Strategist

Trading the News: U.S. Consumer Confidence

What’s Expected:

Time of release: 11/27/2012 15:00 GMT, 10:00 EST

Primary Pair Impact: EURUSD

Expected: 73.0

Previous: 72.2

DailyFX Forecast: 74.5 to 71.0

Why Is This Event Important:

The Conference Board’s Consumer Confidence survey is expected to increase to the highest since 2008 as market see the index climbing to 73.0 in November and the ongoing improvement in household sentiment could prop up the U.S. dollar as it dampens the prospects for additional monetary support. As Fed Chairman Ben Bernanke sees a more broad-based recovery in the world’s largest economy, we should see the central bank slowly move away from its easing cycle, and the FOMC may continue to sit on the sidelines as the December 12 meeting as the region gets on a more sustainable path.

Recent Economic Developments

The Upside

Release

Expected

Actual

Housing Starts (MoM) (OCT)

-3.7%

3.6%

Consumer Credit (SEP)

$10.175B

$11.365B

Change in Non-Farm Payrolls (OCT)

125K

171K

The Downside

Release

Expected

Actual

U. of Michigan Confidence (NOV F)

84.5

82.7

Consumer Price Index (YoY) (OCT)

2.1%

2.2%

Advance Retail Sales (OCT)

-0.2%

-0.3%

Household sentiment may track higher in November amid the ongoing expansion in private sector credit paired with the rebound in the housing market, and a positive development may increase the appeal of the USD as it raises the outlook for growth. However, the Conference Board’s survey may disappoint as Americans face sticky inflation along with subdued wages, and a marked decline in consumer confidence may fuel bets for more quantitative easing as Fed doves maintain a cautious tone for the region.

Potential Price Targets For The Release

Forex_EURUSD-_Trading_the_U.S._Consumer_Confidence_Report_body_ScreenShot076.png, Forex: EUR/USD- Trading the U.S. Consumer Confidence Report

As the relative strength index on the EURUSD breaks out of the downward trend, we may see the euro-dollar threaten the descending channel carried over from 2011, but the pair could be carving out a lower top ahead of December should the oscillator continue to find resistance around the 66 figure. In turn, we may see the EURUSD fall back towards the 23.6% Fibonacci retracement from the 2009 high to the 2010 low around 1.2640-50, and the dollar may appreciate throughout the remainder of the year as the fundamental outlook for the U.S. improves.

How To Trade This Event Risk

Forecasts for another uptick in consumer confidence favors a bullish outlook for the greenback, and positive development may pave the way for a long U.S. dollar trade as the data curbs speculation for more easing. Therefore, if the survey advances to 73.0 or higher, we will need a red, five-minute candle following the print to establish 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 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 hits its mark in order to preserve our profits.

On the other hand, as households face stagnant wage growth paired with sticky prices, the persistent slack within the real economy may drag on confidence, and a unexpected decline in the index may drag on the reserve currency as it renews bets for more QE. If the report falls short of market expectations, we will implement the same strategy for a long euro-dollar as the short position laid out above, just in the opposite direction.

Impact that the 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)

OCT 2012

11/01/2012 14:00 GMT

73.0

72.2

-20

-21

October 2012 U.S. Consumer Confidence

Forex_EURUSD-_Trading_the_U.S._Consumer_Confidence_Report_body_ScreenShot075.png, Forex: EUR/USD- Trading the U.S. Consumer Confidence Report

Although the consumer confidence report fell short of market expectations, the 72.2 print for October marked the highest reading since February 2008 amid the gradual recovery in the world’s largest economy. The U.S. dollar tracked higher following the report, with the EURUSD pushing back below the 1.2950 figure, and the pair held relatively steady throughout the North American trade as the exchange rate ended the day at 1.2940.

--- 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, please follow this link.

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