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USD Vulnerable to Further Losses as Consumer Confidence Wanes

USD Vulnerable to Further Losses as Consumer Confidence Wanes

David Song, Gregory Marks,

- U.S. Consumer Confidence to Mark First Decline in Three-Months

- Conference Board’s Survey has Held Above 80.0 for Four Times in 2013

Trading the News: U.S. Consumer Confidence

The Conference Board’s Consumer Confidence survey is expected to narrow to 80.0 in February and a marked decline in household sentiment may trigger a bearish reaction in the U.S. dollar as it dampens the outlook for growth and inflation.

What’s Expected:

Time of release: 02/25/2014 15:00 GMT, 10:00 EST

Primary Pair Impact: EURUSD

Expected: 80.0

Previous: 80.7

DailyFX Forecast: 78.0 to 82.0

Why Is This Event Important:

With the Federal Open Market Committee (FOMC) poised to discuss another $10B taper at the March 19 meeting, a dismal confidence reading may have a greater impact on the interest rate outlook, and the greenback may face additional headwinds over the near to medium-term as the central bank retains the dovish twist to its forward-guidance.

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Advance Retail Sales (MoM) (JAN)

0.0%

-0.4%

Change in Non-Farm Payrolls (JAN)

180K

113K

Durable Goods Orders (DEC)

1.8%

-4.3%

The ongoing slack in the labor market paired with the slowdown in private consumption may highlight a further decline in household sentiment, and a dismal print may generate a further decline in the greenback as it dampens the prospects for a stronger recovery in 2014.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

U. of Michigan Confidence (FEB P)

80.2

81.2

Consumer Credit (DEC)

$12.000B

$18.756B

Average Hourly Earnings (YoY) (JAN)

1.8%

1.9%

However, the uptick in wage growth along with the expansion in consumer credit may prop up household confidence, and a better-than-expected release may spur a more meaningful rebound in the USD as it raises the Fed’ s scope to normalize monetary policy sooner rather than later.

How To Trade This Event Risk(Video)

Join DailyFX on Demand for Full Coverage of the U.S. Consumer Confidence Report

Bearish USD Trade: Confidence Survey Weakens to 80.0 or Lower

  • Need to see green, five-minute candle following the print to consider a long trade on EURUSD
  • 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: Household Sentiment Unexpectedly Improves

  • Need red, five-minute candle to favor a short EURUSD trade
  • Implement same setup as the bearish dollar trade, just in the opposite direction

Potential Price Targets For The Release

EURUSD Daily

Forex_USD_Vulnerable_to_Further_Losses_as_Consumer_Confidence_Wanes_body_Picture_2.png, USD Vulnerable to Further Losses as Consumer Confidence Wanes

Chart - Created Using FXCM Marketscope 2.0

  • Preserves 2008 Downward Trend; Remains in Topping Process Capped by 1.3770
  • Bullish RSI Momentum Under Pressure; Downside Break to Highlight Lower-High
  • Interim Resistance: 1.3800 (100.0% expansion) to 1.3830 (61.8% retracement)
  • Interim Support: 1.3450 (38.2% retracement) to 1.3460 (50.0% expansion)

Impact that the U.S. Consumer Confidence survey has had on EUR/USD during the last release

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

JAN 2014

01/28/2014 15:00 GMT

78.0

80.7

-10

-20

January 2014 U.S. Consumer Confidence

Forex_USD_Vulnerable_to_Further_Losses_as_Consumer_Confidence_Wanes_body_Picture_1.png, USD Vulnerable to Further Losses as Consumer Confidence Wanes

Consumer Confidence out of the U.S. had a small impact on EUR/USD price action following the print, but the better than expected reading came out in the Dollar’s favor. This February’s reading may provide more volatility as market participants assess whether recent weather has been the driver of negative data over the past few weeks. If we do see consumer confidence follow the rest of U.S. data to the downside, then we can expect Dollar weakness against the majors.

--- Written by David Song, Currency Analyst and Gregory Marks

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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