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EUR/USD to Carve Near-Term Top on Upbeat U. of Michigan Confidence

EUR/USD to Carve Near-Term Top on Upbeat U. of Michigan Confidence

2014-12-12 08:00:00
David Song, Shuyang Ren,
Share:

- U. of Michigan Confidence Survey to Increase for Fifth Consecutive Month.

- Print of 89.5 Would Mark Highest Print Since July 2007.

Trading the News: U. of Michigan Confidence

Another uptick in the U. of Michigan Confidence survey may spur a further decline in the EUR/USD amid growing speculation for a Fed rate hike in mid-2015.

What’s Expected:

EUR/USD U. of Michigan Confidence

Click Here for the DailyFX Calendar

Why Is This Event Important:

Positive data prints coming out of the U.S economy should continue to fuel interest rate expectations and heighten the bullish sentiment surrounding the greenback as a growing number of Fed officials scale back their dovish tone for monetary policy.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Advance Retail Sales (MoM) (NOV)

0.4%

0.7%

Non-Farm Payrolls (NOV)

230K

321K

Average Weekly Earnings (YoY) (NOV)

2.1%

2.1%

Consumer sentiment may climb to a seven-year high on the back of faster job/wage growth, and a further improvement may generate another decline in EUR/USD amid the deviation in the policy outlook.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Consumer Credit (OCT)

$16.500B

$13.226B

Personal Consumption Expenditure Core (YoY) (OCT)

1.5%

1.6%

Consumer Price Index Core (YoY) (OCT)

1.7%

1.8%

However, we the survey may disappoint as U.S. households face sticky price pressures paired with the ongoing slack in the real economy, and a dismal print may spur a larger correction in the greenback as it drags on expectations for higher borrowing-costs.

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 89.5 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: Consumer Confidence Falls Short of Market Forecast

  • 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 Chart

EUR/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Failed attempts to close above 1.2450-70 may highlight near-term topping process for EUR/USD especially as the RSI largely retains a bearish momentum.
  • Interim Resistance: 1.2600 pivot to 1.2610 (61.8% expansion)
  • Interim Support: 1.2280 (100% expansion) to 1.2290 (38.2% expansion)

Read More:

Crude Technical Intersection is at 53 Until January

GBPAUD Exhaustion Trade- Longs at Risk Sub 1.9000

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)

NOV P

2014

11/14/2014 14:55 GMT

87.5

89.4

+52

+100

November 2014 U. of Michigan Confidence Survey

EUR/USD Chart

The U. of Michigan Confidence survey unexpectedly surged to 89.4 in November from 86.9 the month prior to mark the fourth consecutive advance. Despite the uptick in sentiment, 12-month inflation expectations weakened further during the same period, with the figure slowing to an annualized 2.6% from 2.9% in October. Nevertheless, the ongoing improvement may highlight a stronger recovery for the U.S. economy as private-sector consumption remains one of the leading drivers of growth. The initial bullish dollar reaction was very short-lived as EUR/USD pushed back above the 1.2450 region following the data print, with the pair ending the day at 1.2521.

--- Written by David Song, Currency Analyst and Shuyang Ren

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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