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EUR/USD Risks Fresh June Lows as U. of Michigan Confidence Rebounds

EUR/USD Risks Fresh June Lows as U. of Michigan Confidence Rebounds

David Song, Strategist

- U. of Michigan Confidence Survey to Rebound in June

- Expected to Hold Above 80.0 for Seventh Consecutive Month

Trading the News: U. of Michigan Confidence

A rebound in the U. of Michigan Confidence survey may generate a further decline in the EUR/USD as it raises the fundamental outlook for the U.S. economy.

What’s Expected:

EUR/USD U. of Michigan Confidence

Click Here for the DailyFX Calendar

Why Is This Event Important:

Indeed, a further improvement in household sentiment may spur a greater dissent within the Federal Open Market Committee (FOMC), and the Fed may show a greater willingness to normalize monetary policy sooner rather than later as the central bank hawks see a faster recovery in the second-half of 2014.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Consumer Credit (MAR)

$15.500B

$17.529B

Change in Non-Farm Payrolls (MAY)

215K

217K

Average Hourly Earnings (YoY) (MAY)

2.0%

2.1%

The ongoing pickup in employment paired with the uptick in wage growth may generate a marked rebound in consumer confidence, and a positive print may spur a bullish reaction in the USD as it raises the outlook for growth and inflation.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Advance Retail Sales (MoM) (MAY)

0.6%

0.3%

Personal Consumption Expenditure Core (YoY) (APR)

1.4%

1.4%

Consumer Price Index (YoY) (APR)

2.0%

2.0%

However, we may see another unexpected downtick in the confidence survey as household face sticky prices, and a dismal U. of Michigan print may dampen the appeal of the greenback as it drags on interest rate expectations.

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

How To Trade This Event Risk(Video)

Bullish USD Trade: U. of Michigan Survey Climbs to 83.0 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 Continues to Deteriorate

  • 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

EUR/USD Daily

EUR/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Bullish Outside Day (Harami) in Focus as EUR/USD Preserves Monthly Low (1.3501)
  • Interim Resistance: 1.3650 (78.6% expansion) to 1.3670 (61.8% retracement)
  • Interim Support: 1.3490 (50.0% retracement to 1.3500 Pivot

Read More:

Price & Time: Kiwi!

EURAUD at Fresh 2014 Lows- Reversal Risk High Above 1.4420/40

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)

MAY P

2014

05/16/2014 13:55 GMT

84.5

81.8

-8

-18

May P 2014 U. of Michigan Confidence Survey

GBP/USD Chart

The U. of Michigan Confidence survey unexpectedly weakened in May, with the index slipping to 81.8 from 84.1 the month prior. Despite the weaker-than-expected print, the EUR/USD struggled to hold above the 1.3700 handle, with the pair closing the day at 1.3692.

--- 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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