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Waning U. of Michigan Confidence Survey to Dampen Appeal of USD

Waning U. of Michigan Confidence Survey to Dampen Appeal of USD

2017-06-16 10:00:00
David Song, Strategist
Share:

- U. of Michigan Confidence to Narrow for First Time Since February.

- 12-Month Inflation Expectations Climbed to 2.6% in May to Mark Second Highest Reading for 2017.

Trading the News: U. of Michigan Confidence

U. of Michigan Confidence

A downtick in the U. of Michigan Confidence survey may undermine the recent strength in the U.S. dollar as it dampens the outlook for growth and inflation.

Why Is This Event Important:

Even though the Federal Open Market Committee (FOMC) appears to be on course to implement higher borrowing-costs over the coming months, signs of a slowing economy may push the central bank to buy more time as ‘market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.’ However, another unexpected uptick in household sentiment may generate a bullish reaction in the greenback as it puts pressure on Chair Janet Yellen and Co. to further normalize monetary policy sooner rather than later.

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Impact that the U. of Michigan survey has had on EUR/USD during the previous release

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

MAY

2017

05/12/2017 14:00 GMT

97.0

97.7

+2

+11

May 2017 U. of Michigan Confidence

EUR/USD 5-Minute

EUR/USD Chart

The U. of Michigan Confidence survey unexpectedly increased for the third consecutive month in May, with the index climbing to 97.7 in May to mark the second-highest reading for 2017. A deeper look at the report showed 12-month inflation expectations also picked up during the same period, with the gauge advancing to 2.6% from 2.5% in April. Nevertheless, the better-than-expected print generated a limited market reaction, with EUR/USD holds its ground throughout the North American trade to end the day at 1.0931.

How To Trade This Event Risk(Video)

Bearish USD Trade: U. of Michigan Survey Slips to 97.0 or Lower

  • Need a green, five-minute candle following the release to favor a long EUR/USD position.
  • If the market reaction favors a bearish dollar trade, buy EUR/USD with two separate lots.
  • Set stop at the near-by swing low/reasonable distance from entry; look for at least 1:1 risk-to-reward.
  • Move stop to breakeven on remaining position once initial target is met, set reasonable limit.

Bullish USD Trade: Household Confidence Continues to Improve in June

  • Need a red, five-minute EUR/USD candle to favor a long dollar trade.
  • Carry out the same setup as the bearish dollar position, just in reverse.

Potential Price Targets For The Release

EUR/USD Daily

EUR/USD Daily Chart

Chart - Created Using Trading View

  • After failing to test theNovember-high (1.1299), EUR/USD stands at risk for further losses as the pair threatens the upward trend from April; the Relative Strength Index (RSI) highlights a similar dynamic as the oscillator continues to pullback from overbought territory and starts to carve a bearish formation.
  • A break/close below the Fibonacci overlap 1.1140 (23.6% expansion) to 1.1160 (38.2% expansion) may open up the next downside region of interest around 1.0980 (50% retracement) to 1.1020 (50% retracement)., which lines up with the 50-Day SMA (1.0988).
  • Keep in mind the broader outlook for EUR/USD remains constructive as it breaks out of the downward trend from 2016, and the shift in market behavior may prop up the exchange rate throughout the second-half of the year especially as the European Central Bank (ECB) changes its tune and tames expectations for additional monetary support.
  • Interim Resistance: 1.1330 (23.6% expansion) to 1.1340 (78.6% retracement)
  • Interim Support: 1.0780 (100% expansion) to 1.0830 (38.2% retracement)

Make Sure to Check Out the DailyFX Guides for Additional Trading Ideas!

IG Sentiment

Retail trader data shows 32.8% of traders are net-long EUR/USD with the ratio of traders short to long at 2.05 to 1. In fact, traders have remained net-short since April 18 when EUR/USD traded near 1.05975; price has moved 5.2% higher since then. The percentage of traders net-long is now its highest since May 11 when EURUSD traded near 1.08632. The number of traders net-long is 35.3% higher than yesterday and 13.5% higher from last week, while the number of traders net-short is 18.3% lower than yesterday and 9.1% lower from last week.. For more information on retail sentiment, check out the new gauge developed by DailyFX based on trader positioning.

--- Written by David Song, Currency Analyst

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

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