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EURUSD Risks Larger Pullback as U.S. Consumer Confidence Improves

EURUSD Risks Larger Pullback as U.S. Consumer Confidence Improves

2014-03-14 07:00:00
David Song, Gregory Marks,

- U. of Michigan Confidence to Improve for Second Consecutive Month

- Has Held Above 80 for the Last Three-Month; High of 85.1 in 2013

Trading the News: U. of Michigan Confidence

A further pickup in the U. of Michigan Confidence survey may prop up the U.S. dollar ahead of the Fed’s March 19 meeting as it raises the prospects for a stronger recovery in 2014.

What’s Expected:

Time of release: 03/14/2014 13:55 GMT, 9:55 EDT

Primary Pair Impact: EURUSD

Expected: 82.0

Previous: 81.6

DailyFX Forecast: 80.0 to 83.0

Why Is This Event Important:

Indeed, positive developments coming out of the U.S. economy may heighten bets of seeing another $10B reduction in the asset-purchase program, but an unexpected decline in household sentiment may drag on interest rate expectations as Fed Chair Janet Yellen pledges to retain the zero-interest rate policy even after achieving the 6.5% threshold for unemployment.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Advance Retail Sales (MoM) (FEB)

0.2%

0.3%

Change in Non-Farm Payrolls (FEB)

149K

175K

Average Hourly Earnings (YoY) (FEB)

2.0%

2.2%

The rebound in retail sales along with the pickup in wage growth may highlight a further improvement in household sentiment, and an upbeat print may pave the way for a more meaningful rebound in the greenback as it raises the Fed’s scope to normalize monetary policy sooner rather than later.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Consumer Credit (JAN)

$14.000B

$13.698B

Consumer Confidence (FEB)

80.0

78.1

Consumer Price Index (YoY) (JAN)

1.6%

1.6%

However, U.S. consumer confidence may unexpectedly deteriorate amid higher living costs paired with the recent slowdown in private sector credit, and a weaker-than-expected survey may prompt another selloff in the dollar as it gives the Fed greater scope to retain its highly accommodative policy stance for an extended period of time.

How To Trade This Event Risk(Video)

Join DailyFX on Demand for Full Coverage of the U. of Michigan Confidence Survey

Bullish USD Trade: Consumer Confidence Climbs to 82.0 or Higher

  • Need to see red, five-minute candle following the release to consider a short trade on EURUSD
  • If market reaction favors a long dollar trade, sell EURUSD with two separate position
  • Set stop at the near-by swing high/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

Bearish USD Trade: Household Sentiment Unexpectedly Falters

  • Need green, five-minute candle to favor a long EURUSD trade
  • Implement same setup as the bullish dollar trade, just in the opposite direction

Potential Price Targets For The Release

EURUSD Daily

Forex_EURUSD_Risks_Larger_Pullback_as_U.S._Consumer_Confidence_Improves_body_Picture_2.png, EURUSD Risks Larger Pullback as U.S. Consumer Confidence Improves

Chart - Created Using FXCM Marketscope 2.0

  • Stalls at Trendline Support, 61.8% Fib Expansion- Higher High in Place?
  • Break of Bullish RSI Momentum to Highlight Near-Term Correction
  • Interim Resistance: 1.3960-70 (61.8% expansion)
  • Interim Support: 1.3600 Pivot to 1.3620 (23.6 retracement)

Impact that the U. of Michigan Confidence 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)

FEB P

2014

02/14/2014 14:45 GMT

80.2

81.2

-7

flat

February 2014 U. of Michigan Confidence Survey

Forex_EURUSD_Risks_Larger_Pullback_as_U.S._Consumer_Confidence_Improves_body_Picture_1.png, EURUSD Risks Larger Pullback as U.S. Consumer Confidence Improves

The University of Michigan confidence survey for February came in better than expected and the revision later in the month edged up higher to 81.6. Despite the beat, price action in EUR/USD was limited and is likely to remain limited at the release so long that the figure does not largely deviate from expectations. Market sentiment remains preoccupied with much larger developments in the equity market in addition to geopolitical tensions and the week ahead comes with some key event risk including European CPI figures and the FOMC Rate Decision.

--- 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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