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USD Relief Rally at Risk as Consumer Confidence Falters

USD Relief Rally at Risk as Consumer Confidence Falters

David Song, Strategist

- U. of Michigan Confidence to Weaken for Third Month

- U.S. Dollar Relief Rally in Focus Amid Debt Talk

Trading the News: U. of Michigan Confidence

A further decline in the U. of Michigan Confidence survey may prompt a more bearish outlook for the U.S. dollar as it dampens the scope of seeing the Federal Open Market Committee (FOMC) taper the asset-purchase program at the October 29-30 meeting.

What’s Expected:

Time of release: 10/11/2013 13:55 GMT, 9:55 EDT

Primary Pair Impact: EURUSD

Expected: 75.7

Previous: 77.5

DailyFX Forecast: 72.0 to 79.0

Why Is This Event Important:

Indeed, the Fed may continue to delay its exit strategy in an effort to combat the fiscal drag, and the central bank may carry its highly accommodative policy stance into 2014 as a means to further insulate the real economy.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Consumer Confidence (SEP)

79.9

79.7

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

2.6%

2.5%

Change in Non-Farm Payrolls (AUG)

180K

169K

Household sentiment may weaken further in October amid the ongoing slack in the real economy, and the government shutdown may prompt a marked decline in the U. of Michigan survey as it dampens the scope for a stronger recovery.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Consumer Credit (AUG)

$12.000B

$13.625B

Personal Income (AUG)

0.4%

0.4%

Average Hourly Earnings (YoY) (AUG)

2.1%

2.2%

Nevertheless, the pickup in wage growth along with the ongoing expansion in consumer credit may prop up consumer confidence, and a better-than-expected print may spur a more meaningful rally in the dollar as it raises the outlook for growth.

How To Trade This Event Risk(Video)

Bearish USD Trade: U. of Michigan Confidence Weakens for Third Month

  • Need green, five-minute candle following the print to consider a short U.S. dollar trade
  • If market reaction favors a short dollar trade, buy EURUSD with two separate position
  • Set stop at the near-by swing low/reasonable distance from entry; look for at least 1:1 risk-to-reward
  • Move stop to entry on remaining position once initial target is hit, set reasonable limit

Bullish USD Trade: Consumer Sentiment Improves

  • Need red, five-minute candle to favor a short EURUSD trade
  • Implement same setup as the bearish U.S. dollar trade, just in reverse

Potential Price Targets For The Release

EURUSD Daily

Forex_USD_Relief_Rally_at_Risk_as_Consumer_Confidence_Falters_body_Picture_2.png, USD Relief Rally at Risk as Consumer Confidence Falters

Chart - Created Using FXCM Marketscope 2.0

  • Breaks Bullish Trend From September; New Downward Trending Channel?
  • Relative Strength Index Also Carving Bearish Trend
  • Interim Resistance: 1.3650-60 (78.6% expansion)
  • Interim Support: 1.3360-70 (38.2% expansion)

Impact that the U. of Michigan 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)

SEP P 2013

09/13/2013 13:55 GMT

82.0

76.8

-6

+33

September 2013 U. of Michigan Confidence

Forex_USD_Relief_Rally_at_Risk_as_Consumer_Confidence_Falters_body_ScreenShot223.png, USD Relief Rally at Risk as Consumer Confidence Falters

U.S. consumer confidence weakened for the second month in September, with the U. of Michigan survey narrowing to 76.8 from 82.1 the month prior, while inflation expectations advanced to an annualized 3.2% from 3.0% to mark the highest reading since March. The mixed reaction following the print was short-lived as the EURUSD worked its way back above the 1.3275 region, and the greenback continued to lose ground throughout the day as the pair closed at 1.3297.

--- 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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