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Disappointing U. of Michigan Survey to Further Fuel EUR/USD Recovery

Disappointing U. of Michigan Survey to Further Fuel EUR/USD Recovery

2015-09-11 08:00:00
David Song, Shuyang Ren,
Share:

- U. of Michigan Survey to Narrow for Third-Consecutive Month .

- Reading of 91.1 Would Mark the Lowest Reading Since May.

For more updates, sign up for David's e-mail distribution list.

Trading the News: U. of Michigan Confidence

Another downtick in the U. of Michigan Confidence survey may dampen the appeal of the greenback and encourage a larger rebound in EUR/USD as it raises the Fed’s scope to further delay the normalization cycle.

What’s Expected:

EUR/USD U. of Michigan

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Why Is This Event Important:

There’s growing speculation that the Federal Open Market Committee (FOMC) will retain the zero-interest rate policy (ZIRP) at the September 17 interest rate decision amid the mixed batch of data coming out of the U.S. economy, but the central bank may stay on course to introduce higher borrowing-costs in 2015 as Chair Janet Yellen anticipates a stronger recovery ahead.

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Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Change in Non-Farm Payrolls (AUG)

217K

173K

ADP Employment Change (AUG)

200K

190K

Personal Income (JUL)

0.4%

0.4%

Signs of slowing job growth paired with stagnant wages may further erode household sentiment, and a marked decline in the U. of Michigan survey may push the Fed to adopt a more dovish tone at next week’s policy meeting amid the weakening outlook for global growth.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Consumer Credit (JUL)

$18.800B

$19.097B

Gross Domestic Product (Annualized) (QoQ) (2Q P)

3.2%

3.7%

Durable Goods Orders (JUL)

-0.4%

2.0%

On the other hand, the expansion in private lending accompanied by the pickup in economic activity may generate a better-than-expected confidence survey, and a positive development may keep the Fed on course to raise the benchmark interest rate later this year as the central bank retains an upbeat outlook for the economy.

How To Trade This Event Risk(Video)

Bearish USD Trade: U. of Michigan Survey Slips to 91.1 or Lower

  • Need to see green, five-minute candle following the release to consider a long trade on EURUSD.
  • If market reaction favors a bearish 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: Consumer Confidence Beats Market Forecast

  • 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

EUR/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • With EUR/USD giving back the decline following the ECB meeting, the pair remains at risk for a larger advance ahead of the Fed’s rate decision, but will keep a close eye on the Relative Strength Index (RSI) as the oscillator struggles to preserve the bullish formation carried over from July.
  • DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains net-short EUR/USD since March 9, but the ratio appears to be working its way back towards recent extremes as it widens to -1.75, with 36% of traders long.
  • Interim Resistance: 1.1760 (61.8% retracement) to 1.1810 (38.2% retracement)
  • Interim Support: Interim Support: 1.0790 (50% expansion) to 1.0800 (23.6% expansion)

Read More:

EURNZD Ripe to Breakout of Consolidation Pattern

Scalping GBPAUD Pullback- Targets in View Ahead of Aussie Data, BoE

Impact that the U. of Michigan 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)

AUG P

2015

08/14/2015 14:00 GMT

93.5

92.9

-25

-29

August 2015 U. of Michigan Confidence

EUR/USD Chart

The U. of Michigan Confidence survey unexpectedly weakened for a the second consecutive month in August, with the figure narrowing to 92.9 from 93.1 the month prior. Nevertheless, the 12-month gauge for inflation expectations held steady at an annualized 2.8%, but the renewed weakness in energy prices may drag on the outlook for price growth amid the disinflation environment across the major industrialized economies. The initial market reaction to the worse-than-expected print was short-lived as the greenback retained its footing following the release, with EUR/USD closing the day at 1.1107.

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

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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