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Will Another Drop in Consumer Confidence Threaten USD Support?

Will Another Drop in Consumer Confidence Threaten USD Support?

David Song, Strategist

Trading the News: U.S. Consumer Confidence

U.S. Consumer Confidence is expected to narrow for the second month in August and a marked downturn may produce a spark a selloff in the U.S. dollar as it raises the Fed’s scope to maintain its highly accommodative policy stance over the near to medium-term.

What’s Expected:

Time of release: 08/27/2012 14:00 GMT, 10:00 EDT

Primary Pair Impact: EURUSD

Expected: 79.0

Previous: 80.3

DailyFX Forecast: 78.0 to 82.0

Why Is This Event Important:

Another drop in household confidence may dampens bets of seeing the FOMC taper its $85 asset-purchase program at the September 17-18 meeting, and the central bank continue to delay its exit strategy in an effort to encourage a stronger recovery.

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Durable Goods Orders (JUL)

-4.0%

-7.3%

Advance Retail Sales (MoM) (JUL)

0.3%

0.2%

Average Hourly Earnings (YoY) (JUL)

2.2%

1.9%

The slowdown in private sector consumption could be indicative of a further slowdown in household sentiment, and a dismal print is likely to drag on the USD as it dampens the outlook for growth and inflation.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

House Price Index (MoM) (JUN)

0.6%

0.7%

Existing Home Sales (MoM) (JUL)

1.4%

6.5%

Quarterly Gross Domestic Product (Annualized) (2Q A)

1.0%

1.7%

Nevertheless, the more broad-based recovery in the housing market may help to prop up consumer confidence, and an unexpected uptick in the Conference Board’s survey may produce a more meaningful rebound in the reserve currency amid the growing discussion at the Fed to scale back on quantitative easing.

How To Trade This Event Risk(Video)

Bearish USD Trade: Consumer Confidence narrows to 79.0 or lower

  • Need green, five-minute candle after the report to consider a long EURUSD trade
  • If the market reaction favors a buy trade, establish long with two position
  • Place stop at the near-by swing low/reasonable distance from entry; need at least 1:1 risk-to-reward
  • Shift stop to entry on remaining position once initial target is met; set reasonable limit

Bullish USD Trade: Sentiment exceeds market forecast

  • Need red, five-minute candle following the release to look at a short EURUSD entry
  • Implement same strategy as the bearish USD trade, just in reverse

Potential Price Targets For The Release

Forex_Will_Another_Drop_in_Consumer_Confidence_Threaten_USD_Support_body_ScreenShot014.png, Will Another Drop in Consumer Confidence Threaten USD Support?
  • Fails to maintain upward trending channel; appears to be carving top
  • Keep an eye on the bearish divergence in the Relative Strength Index
  • Soft resistance/pivot: 1.3450; confluence on Fibonacci retracements at 1.3500
  • Need a close below 61.8% retracement (1.3340) for larger downturn
  • Interim support: 1.3240 (78.6% expansion), 1.3320 (50.0% retracement)

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 2013

07/30/2013 14:00 GMT

81.3

80.3

-16

-7

July 2013 U.S. Consumer Confidence

Forex_Will_Another_Drop_in_Consumer_Confidence_Threaten_USD_Support_body_ScreenShot013.png, Will Another Drop in Consumer Confidence Threaten USD Support?

U.S. household sentiment fell back from a five-year high, with the Conference Board’s survey narrowing to 80.3 from a revised 82.1 in June, but the recent weakness is likely to be short-lived as the economic recovery is expected to gradually gather pace in the second-half of the year. Despite the weaker-than-expected print, the initial reaction was short-lived as the headline figure marked the second-highest reading since January 2008, but we saw the greenback consolidate throughout the North American trade as the pair ended the day at 1.3261.

--- 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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