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EUR/USD- Trading the U.S. Consumer Confidence Survey

EUR/USD- Trading the U.S. Consumer Confidence Survey

David Song, Strategist

Trading the News: U.S. Consumer Confidence

What’s Expected:

Time of release: 03/26/2012 14:00 GMT, 10:00 EDT

Primary Pair Impact: EURUSD

Expected: 67.5

Previous: 69.6

DailyFX Forecast: 66.0 to 70.5

Why Is This Event Important:

The Conference Board’s Consumer Confidence survey is expected to fall back to 67.5 in March from a three-month high and the drop in household sentiment may drag on the U.S. dollar as it dampens the outlook for growth. As the FOMC retains a cautious outlook for the world’s largest economy, a dismal print may renew expectations for additional monetary support, but the resilience in private sector consumption may limit the central bank’s scope to expand the balance sheet further as the economy gets on a more sustainable path.

Recent Economic Developments

The Upside

Release

Expected

Actual

Advance Retail Sales (FEB)

0.5%

1.15

Change in Non-Farm Payrolls (FEB)

165K

236K

Consumer Credit (JAN)

$14.700B

$16.151B

The Downside

Release

Expected

Actual

Consumer Price Index (YoY) (FEB)

1.9%

2.0%

Average Hourly Earnings (YoY) (FEB)

2.1%

2.1%

Personal Income (JAN)

-2.4%

-3.6%

The expansion in consumer credit along with the pickup in job growth may prop up household sentiment, and we may see a growing number of Fed officials adopt a more neutral to hawkish tone for monetary policy as the economic recovery gradually gathers pace. However, the persistent weaken in wage growth paired with sticky inflation may put a dent on household sentiment, and the FOMC may retain its highly accommodative policy stance throughout 2013 in an effort to address the ongoing slack in the real economy.

Potential Price Targets For The Release

Forex_EURUSD-_Trading_the_U.S._Consumer_Confidence_Survey__body_ScreenShot103.png, EUR/USD- Trading the U.S. Consumer Confidence Survey

As the EURUSD struggles to hold above the 200-Day SMA (1.2874), the pair could be poised to give back the rebound from back in November (1.2659), and the euro-dollar may steady work its way back towards 1.2640-50 – the 23.6% Fibonacci retracement from the 2009 high to the 2010 low – as it searches for support. At the same time, the EURUSD may be limited to the upside as long as the relative strength index remains capped by the 46 figure, and we may see the longer-term bearish flag pattern continue to play out amid the deviation in the policy outlook.

How To Trade This Event Risk

Expectations for a drop in sentiment casts a bearish outlook for the reserve currency, but a positive development may set the stage for a long U.S. dollar trade as it raises the prospects for future growth. Therefore, if the survey exceeds market expectations, we will need to see a red, five-minute candle following the release to generate a sell entry on two-lots of EURUSD. Once these conditions are fulfilled, 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 an effort to lock-in our gains.

On the other hand, we may see sticky prices along with the ongoing weakness in the real economy drag on household sentiment, and a dismal print may weaken the dollar as it raises the Fed’s scope to expand the balance sheet further. In turn, if the survey slips to 67.5 or lower in March, we will implement the same setup for a long euro-dollar trade as the short position laid out above, just in reverse.

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)

FEB

2013

02/26/2013 15:00 GMT

62.0

69.6

-33

-44

January 2013 U.S. Consumer Confidence

Forex_EURUSD-_Trading_the_U.S._Consumer_Confidence_Survey__body_ScreenShot099.png, EUR/USD- Trading the U.S. Consumer Confidence Survey

The gauge for U.S. household sentiment jumped to 69.6 from a revised 58.4 in January to mark the biggest advance since November 2011, while inflation expectations for the next 12 months slipped to an annualized 5.5%, posting the slowest rate of growth since July. The stronger-than-expected print propped up the greenback, with the EURUSD slipping below the 1.3050 figure, but we saw the reserve currency consolidate during the North American trade as the pair ended the day at 1.3061.

--- 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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