- U. of Michigan Confidence to Rebound from Lowest Reading Since September 2015.
- Will Consumer Inflation-Expectations Hold Steady in October?
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Trading the News: U. of Michigan Confidence Survey
A rebound in the U. of Michigan Confidence survey may spark a bullish reaction in the U.S. dollar and fuel the recent selloff in EUR/USD should the data print highlight an improved outlook for growth and inflation.
What’s Expected:
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Why Is This Event Important:
The Federal Open Market Committee (FOMC) looks poised to deliver a December rate-hike as ‘the Committee judges that the case for an increase in the federal funds rate has continued to strengthen,’ and Chair Janet Yellen and Co. may continue to normalize monetary policy in the year ahead as the central bank sees a ‘moderate’ recovery going forward. However, another unexpected decline in household sentiment may dampen the appeal of the greenback and drag on interest-rate expectations as central bank officials continue to warn ‘market-based measures of inflation compensation have moved up but remain low; most survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.’
Expectations: Bullish Argument/Scenario
| Release | Expected | Actual |
|---|---|---|
| Average Hourly Earnings (OCT) | 2.6% | 2.8% |
| Gross Domestic Product (Annualized) (QoQ) (3Q A) | 2.6% | 2.9% |
| Real Average Weekly Earnings (YoY) (SEP) | -- | 0.8% |
Signs of a stronger recovery accompanied by the pickup in household earnings may boost consumer sentiment, and a marked rebound in the U. of Michigan survey may spark a bullish reaction in the greenback as the Fed appears to be on course to further normalize monetary policy in 2017.
Risk: Bearish Argument/Scenario
| Release | Expected | Actual |
|---|---|---|
| Non-Farm Payrolls (OCT) | 173K | 161K |
| Core Personal Consumption Expenditure (QoQ) (3Q A) | 1.6% | 1.7% |
| Consumer Price Index (YoY) (SEP) | 1.5% | 1.5% |
Nevertheless, slowing job growth paired with sticky inflation may ultimately weigh on household sentiment, and another dismal development may dampen the appeal of the U.S. dollar as it drags on interest rate expectations.
How To Trade This Event Risk(Video)
Bullish USD Trade: U. of Michigan Confidence Survey Climbs to 87.9 or Greater
- Need red, five-minute candle following the report to consider a short EUR/USD trade.
- 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 cost; at least 1:1 risk-to-reward.
- Move stop to entry on remaining position once initial target is met, set reasonable limit.
Bearish USD Trade: U.S. Household Sentiment Continues to Deteriorate
- Need green, five-minute candle to favor a long EUR/USD trade.
- Implement same strategy as the bullish dollar trade, just in reverse.
Potential Price Targets For The Release
EURUSD Daily
Chart - Created Using Trading View
- EUR/USD stands at risk for further losses as it fails to preserve the ascending channel formation carried over from the previous month, with a break of the October low (1.0851) raising the risk for a more meaningful run at the March low (1.0822) especially as the pair preserves the bearish trend carried over from earlier this year.
- Interim Resistance: 1.1300 (23.6% retracement) to 1.1320 (38.2% expansion)
- Interim Support: 1.0780 (100% expansion) to 1.0800 (23.6% retracement)
Check out the short-term technical levels that matter for USD/JPY heading into the report!
Impact the U. of Michigan Confidence has had on EUR/USD during the last release
| Period | Data Released | Estimate | Actual | Pips Change | Pips Change |
|---|---|---|---|---|---|
OCT P 2016 | 10/14/2016 14:00 GMT | 91.8 | 87.9 | -2 | -37 |
October 2016 U. of Michigan Confidence Survey
EUR/USD 5-Minute
Chart - Created Using Trading View
The U. of Michigan survey unexpectedly narrowed to 87.9 in October from 91.2 the month prior, while 12-month inflation expectations held steady at an annualized 2.4% for the second-consecutive month. The recent ongoing weakness in household confidence may encourage the Federal Open Market Committee (FOMC) to retain the current policy at the next meeting in November, but the central bank appears to be following a similar path to 2015 as Fed officials take a more collective approach in preparing U.S. households and businesses for a December rate-hike. The initial weakness in the greenback was short-lived, with EUR/USD pulling back from 1.1028 to end the day at 1.0970.
Get our top trading opportunities of 2016 HERE
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--- Written by David Song, Currency Analyst
To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.
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