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EUR/USD Risks Larger Pullback on Upbeat U. of Michigan Survey

EUR/USD Risks Larger Pullback on Upbeat U. of Michigan Survey

2015-10-16 10:00:00
David Song, Shuyang Ren,
Share:

- U. of Michigan Survey to Improve for First Time in Four-Months .

- Confidence Report Slipped Below 90.0 Mark for First Time Since December 2014.

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

Trading the News: U. of Michigan Confidence

A rebound in the U. of Michigan Confidence survey may prop up the greenback and spark a larger pullback in EUR/USD as it encourages an improved outlook for growth and inflation.

What’s Expected:

EUR/USD U. of Michigan Confidence

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Why Is This Event Important:

Signs pointing to a stronger recovery may keep the Federal Open Market Committee (FOMC) on course to remove the zero-interest rate policy (ZIRP) later this year, and the ‘data dependent’ central bank may continue to prepare U.S. households and businesses for higher borrowing-costs as Chair Janet Yellen remains upbeat on the economy.

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Expectations: Bullish Argument/Scenario

Release

Expected

Actual

NFIB Small Business Optimism (SEP)

95.5

96.1

Construction Spending (MoM) (AUG)

0.5%

0.7%

Building Permits (MoM) (AUG)

2.5%

3.5%

Indications of a more resilient housing market accompanied by prospects for a stronger recovery in the second-half of 2015 may boost household confidence, and a marked rebound may keep interest rate expectations afloat as the Fed remains confident in achieving its dual mandate for full-employment & price stability.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Real Average Weekly Earnings (YoY) (SEP)

--

2.2%

Advance Retail Sales (MoM) (SEP)

0.2%

0.1%

Average Hourly Earnings (YoY) (SEP)

2.4%

2.2%

On the other hand, subdue wage growth accompanied by the ongoing weakness in private-consumption may foreshadow a dismal survey, and a further deterioration in consumer confidence may encourage the Fed to further delay its normalization cycle in an effort to foster a stronger recovery.

How To Trade This Event Risk(Video)

Bullish USD Trade: U. of Michigan Survey Climbs to 89.0 or Higher

  • Need to see red, five-minute candle following the release to consider a short trade on EURUSD.
  • If market reaction favors a bullish 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 Continues to Falter

  • 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

EUR/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Failure to hold below the September high (1.1459) raises the risk for a further advance in EUR/USD, with the August high (1.1713) on the radar especially as the Relative Strength Index (RSI) retains the bullish formation from March.
  • DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains net-short EUR/USD since March 9, but the ratio appears to be coming off of recent extremes as it narrows to -1.89, with 35% 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:

Retail Crowd Positioning Shifts Keep Focus on US Dollar Downside

USD/JPY Eyes August Low Ahead of Kuroda- FX Positioning Near Extremes

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)

SEP P

2015

09/11/2015 14:00 GMT

91.1

85.7

-8

+49

September 2015 U. of Michigan Confidence

EUR/USD Chart

The U. of Michigan Confidence survey unexpectedly slipped to 85.7 in September from 91.9 the month prior, with the reading slipping below the 90.0 mark for the first time since December 2014. A deeper a look at the report showed 12-month inflation expectations increased to 2.9% from 2.8%, with five-year expectations also advancing to 2.8% from 2.7% during the same period. Despite the limited market reaction to the data print, the greenback largely struggled to hold its ground during the North American trade, with EUR/USD climbing above the 1.1300 handle to end the session at 1.1335.

--- 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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