EUR/USD Weakness to Persist on Upbeat U.S. Consumer Confidence Survey
- U.S. Consumer Confidence to Rebound in November.
- Conference Board Index to Push Above 100-Threshold for Third Time in 2016.
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Trading the News: U.S. Consumer Confidence
The Conference Board’s U.S. Consumer Confidence survey is expected to rebound to 101.5 from 98.6 in October, and a marked improvement in household sentiment may drag on EUR/USD as it instills an improved outlook for growth and inflation.
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Why Is This Event Important:
Encouraging data prints coming out of the U.S. economy may push the Federal Reserve to raise the benchmark interest rate at the last-2016 meeting on December 14, and the central bank may continue to normalize monetary policy in the year ahead as central bank officials argue the ‘near-term risks to the economic outlook appear roughly balanced.’ However, another downtick in consumer inflation expectations may prompt the Federal Open Market Committee (FOMC) to adopt a more dovish outlook as ‘inflation has increased somewhat since earlier this year but is still below the Committee's 2 percent longer-run objective.’
Expectations: Bullish Argument/Scenario
|Consumer Credit (SEP)||$17.500B||$19.292B|
|Average Hourly Earnings (YoY) (OCT)||2.6%||2.8%|
|Gross Domestic Product (Annualized) (3Q A)||2.6%||2.9%|
The pickup in private-sector lending accompanied by signs of stronger wage growth may boost consumer confidence, and a strong rebound in the Conference Board’s survey may spark a bullish reaction in the U.S. dollar as it fuels bets for higher borrowing-costs.
Risk: Bearish Argument/Scenario
|Consumer Price Index (YoY) (OCT)||1.6%||1.6%|
|Non-Farm Payrolls (OCT)||173K||161K|
|ADP Employment (OCT)||165K||147K|
However, slowing job growth paired with sticky price pressures may drag on household sentiment, and another unexpected decline in the confidence survey may undermine the bullish sentiment surrounding the greenback as it raises the Fed’s scope to further delay the normalization cycle.
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How To Trade This Event Risk(Video)
Bullish USD Trade: Conference Board Survey Rebounds to 101.5 or Greater
- Need red, five-minute candle following the survey to favor a short EUR/USD position.
- If market reaction favors a bullish dollar trade, sell EUR/USD with two separate lots.
- 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. Durable Goods Orders Report Disappoints
- Need green, five-minute candle to favor a long EUR/USD position.
- Implement same strategy as the bullish dollar trade, just in reverse.
Potential Price Targets For The Release
Chart - Created Using Trading View
- EUR/USD may face a near-term rebound as the Relative Strength Index (RSI) appears to be working its way out of oversold territory, but the broader outlook remains tilted to the downside, with the Euro at risk of facing increased volatility next month as the European Central Bank (ECB) is widely expected to extend the deadline of its quantitative easing (QE) program at the December 8 policy meeting.
- Interim Resistance: 1.0780 (100% expansion) to 1.0800 (23.6% retracement)
- Interim Support: 1.0500 (50% expansion) to 1.0517 (December 2015-low)
Check out the short-term technical levels that matter for NZD/USD heading into the report!
Impact the U.S. Consumer Confidence survey has had on EUR/USD during the last release
|Period||Data Released||Estimate||Actual||Pips Change||Pips Change|
|10/25/2016 14:00 GMT||101.5||98.6||+12||+32|
October 2016 U.S. Consumer Confidence
Chart - Created Using Trading View
The Conference Board’s U.S. Consumer Confidence survey missed market expectations in October, with the index unexpectedly narrowing to 98.6 from a revised reading of 103.5 in September. At the same time, the gauge for 12-month inflation expectations slipped to 4.8% from 5.0% during the same period, and the weakening outlook for price growth may encourage the Federal Reserve to further delay the normalization cycle as the central bank warns ‘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.’ Despite the limited market reaction, EUR/USD climbed higher throughout the North American trade, with the pair ending the day at 1.0886.
Get our top trading opportunities of 2016 HERE
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--- Written by David Song, Currency Analyst
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