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USD at Risk for Further Losses as Consumer Confidence Wanes

USD at Risk for Further Losses as Consumer Confidence Wanes

2013-09-24 09:00:00
David Song, Strategist
Share:

- Conference Board’s Sentiment Survey Has Held Above 80 Since May

- Lowest 2013 Reading Was 58.4 in January; Highest Was 82.1 in June

Trading the News: U.S. Consumer Confidence

A decline in the U.S. Consumer Confidence survey may prompt a bearish reaction in the U.S. dollar as it dampens the prospects for a stronger recovery.

What’s Expected:

Time of release:09/24/2012 14:00 GMT, 10:00 EDT

Primary Pair Impact: EURUSD

Expected: 80.0

Previous: 81.5

DailyFX Forecast: 78.0 to 82.0

Why Is This Event Important:

As a result, a dismal development may also dampen the prospects of seeing the Federal Open Market Committee (FOMC) taper its asset-purchase program at the October 29-30 meeting, and the central bank may continue to delay its exit strategy in an effort to further insulate the world’s largest economy.

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

U. of Michigan Confidence (SEP P)

82.0

76.8

Consumer Credit (JUL)

$12.700B

$10.437B

Change in Non-Farm Payrolls (AUG)

180K

169K

The slowdown in private sector credit along with the ongoing weakness in the labor market may drag on household sentiment, and a marked decline in the survey may further diminish the appeal of the USD as the central bank sticks to its highly accommodative policy stance.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Existing Home Sales (MoM) (AUG)

-2.6%

1.7%

Average Hourly Earnings (YoY) (AUG)

2.1%

2.2%

Gross Domestic Product (QoQ) (Annualized) (2Q P)

2.2%

2.5%

Nevertheless, the more broad-based recovery in the U.S. economy along with the pickup in wage growth may prop up consumer confidence, and another uptick in household sentiment may encourage a more meaningful rebound in the greenback as it raises the arguments to scale back on quantitative easing.

How To Trade This Event Risk(Video)

For Full Coverage of the U.S. Consumer Confidence survey, Join Analyst on Demand

Bearish USD Trade: Conference Board Survey Narrows to 80.0 or Lower

  • Need green, five-minute candle after the report to consider a long EURUSD trade
  • If the market reaction favors a bearish dollar trade, establish long EURUSD with two position
  • Place stop at the near-by swing low/reasonable distance from entry with at least 1:1 risk-to-reward
  • Move stop to cost 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
  • Carry out same strategy as the bearish USD trade, just in reverse

Potential Price Targets For The Release

EURUSD Daily

Forex_USD_at_Risk_for_Further_Losses_as_Consumer_Confidence_Wanes_body_Picture_2.png, USD at Risk for Further Losses as Consumer Confidence Wanes

Chart - Created Using FXCM Marketscope 2.0

  • Fourth Failed Attempt to Close Above the 1.3530-40 (61.8% Fib expansion)
  • Relative Strength Index Fails to Maintain Bullish Momentum; Turns Around Ahead of 70
  • Interim Resistance: 1.3650 (78.6 expansion) to 1.3710 (2013 high)
  • Former Resistance to Offer Support: 1.3360 (38.2 expansion) to 1.3380 Pivot

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)

AUG 2013

08/27/2013 14:00 GMT

79.0

81.5

+6

+6

August 2013U.S. Consumer Confidence

Forex_USD_at_Risk_for_Further_Losses_as_Consumer_Confidence_Wanes_body_ScreenShot134.png, USD at Risk for Further Losses as Consumer Confidence Wanes

U.S. consumer sentiment bounced back in August, with the Conference Board survey advancing to 81.5 from a revised 81.0 the month prior, while 67.9% of respondents anticipate higher borrowing costs going forward as the Fed looks to taper its asset-purchase program in the coming months. The initial market reaction was short-lived, with the EURUSD quickly trading back above the 1.3380 region, and the greenback continued to consolidated throughout the day as the pair closed at 1.3390.

--- 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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