USD Weakness to Persist on Dismal U. of Michigan Confidence Survey
- Preliminary U. of Michigan Confidence Survey to Hold Steady at 95.9 in May.
- Household Sentiment to Retain the Second-Highest Print for 2015.
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Trading the News: U. of Michigan Confidence
The U. of Michigan Confidence survey is expected to hold steady at 95.9 in May, but a marked deviation from market expectations may spur increased volatility in the dollar as the recent series of weak U.S. data prints dampens speculation for a mid-2015 Fed rate hike.
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Why Is This Event Important:
The persistent slack in the real economy may encourage a growing number of central bank officials to adopt a more dovish tone for monetary policy, and the dollar remains at risk of facing additional headwinds over the near-term as the market participants push back bets for the Fed liftoff.
Expectations: Bullish Argument/Scenario
|NFIB Small Business Optimism (APR)||96.0||96.9|
|Unemployment Rate (APR)||5.4%||5.4%|
|ISM Non-Manufacturing (APR)||56.2||57.8|
The Fed’s projection for a faster rate of growth in the second-quarter may encourage a pickup in household sentiment, and a positive U. of Michigan survey may heighten the appeal of the greenback as the Federal Open Market Committee (FOMC) remains on course to remove its zero-interest rate policy (ZIRP).
Risk: Bearish Argument/Scenario
|Advance Retail Sales (MoM) (APR)||0.2%||0.0%|
|Average Hourly Earnings (APR)||2.3%||2.2%|
|Gross Domestic Product (Annualized) (QoQ) (1Q A)||1.0%||0.2%|
Nevertheless, fears of a slowing recovery paired with the ongoing weakness in private-sector consumption may generate a downturn in consumer confidence, and a dismal print may trigger a further decline in the dollar as it drags on interest rate expectations.
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How To Trade This Event Risk(Video)
Bullish USD Trade: U. of Michigan Confidence Prints at 95.9 or Higher
- Need to see red, five-minute candle following the release to consider a short trade on EUR/USD.
- If market reaction favors a bullish dollar trade, sell EUR/USD 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 Fails to Meet Market Expectations
- Need green, five-minute candle to favor a long EUR/USD trade.
- Implement same setup as the bullish dollar trade, just in reverse.
Potential Price Targets For The Release
EUR/USD Daily Chart
Chart - Created Using FXCM Marketscope 2.0
- Ongoing closes above the 1.1300 handle (78.6% retracement) raises the risk for EUR/USD to retrace the decline from the February high especially as the bullish RSI momentum remains in play.
- DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains net-short EUR/USD since April 9, with the ratio currently standing at -2.21.
- Interim Resistance: 1.1520 (61.8% expansion) to 1.1532 (February high)
- Interim Support: 1.0970 (38.2% expansion) to 1.1000 (50% retracement)
GBP/USD Continues Carve Bullish Pattern as Retain Crowd Remains Short
NZDJPY Rebound Testing Resistance- Scalps Target 89.50 Inflection Zone
Impact that the U. of Michigan has had on EUR/USD during the last release
|Period||Data Released||Estimate||Actual||Pips Change||Pips Change|
April 2015 U. of Michigan Confidence
The U. of Michigan Confidence survey advanced to 95.9 from 93.0 in March to mark the second-highest print for 2015. Despite the uptick in household confidence, 12-month inflation expectations slowed to an annualized 2.5% from 3.0% during the same period, and the ongoing slack in the real economy may push the Federal Reserve to further delay its normalization cycle as it struggles to achieve the 2% target for price growth. Despite the larger-than-expected pickup in household sentiment, the greenback struggled to hold its ground following the initial market reaction, with EUR/USD climbing back above the 1.0775 region to end the day at 1.0798.
--- Written by David Song, Currency Analyst
To contact David, e-mail email@example.com. Follow me on Twitter at @DavidJSong.
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