- U. of Michigan Confidence Index to Narrow From Highest Reading Since 2004.

- 12-Month Inflation Expectations Current Sit at the Lowest Level for 2017.

Trading the News: U. of Michigan Confidence

U. of Michigan Confidence

The U. of Michigan Confidence survey is anticipated to pullback from a 13-year high, but another unexpected improvement in household confidence may undermine the near-term rebound in EUR/USD as it boost the outlook for growth and inflation.

With President Donald Trump nominating Fed Governor Jerome Powell to lead the central bank, positive developments coming out of the U.S. economy may keep the Federal Open Market Committee (FOMC) on course to deliver three rate-hikes per year as officials still expected ‘economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate.’ In turn, the FOMC may prepare households and businesses for higher borrowing-costs in 2018, but a marked deterioration in consumer sentiment may generate a bearish reaction in the greenback as it drags on interest-rate expectations.

With that said, a dismal development may ultimately push Chair Janet Yellen and Co. to implement a dovish rate-hike in December as ‘on a 12-month basis, both inflation measures have declined this year and are running below 2 percent.

Impact that the U. of Michigan Confidence survey had on EUR/USD during the previous print

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

OCT A

2017

10/13/2017 14:00:00 GMT

95.0

101.1

-33

-48

October 2017 U. of Michigan Confidence

EUR/USD 5-Minute Chart

EUR/USD Chart

The U. of Michigan Confidence survey unexpectedly improved in October, with the index climbing to 101.1 from 95.1 the month prior to mark the highest reading since 2004. However-, a deeper look at the report showed the gauge for 12-month inflation expectations slipping to an annualized 2.4% from 2.7% in September to mark the lowest reading for 2017, and signs of limited price pressures may encourage Fed officials to adopt a less hawkish tone in 2018 as inflation continues to run below the 2% target.

The U.S. dollar regained its footing following the positive development, with EUR/USD falling back from the 1.1870 region to end the day at 1.1818. Looking to trade the U. of Michigan Confidence survey but don’t have a plan? Download and review the DailyFX Advanced Guide for Trading the News for FREE to learn our 8 step strategy.

EUR/USD Daily Chart

EUR/USD Daily Chart
  • Broader outlook for EUR/USD remains mired by the head-and-shoulders formation carried over from the end of August, with the downside targets still on the radar as the pair struggles to push back above the neckline around 1.1670 (50% retracement).
  • Need a close below 1.1580 (100% expansion) to open up the next downside target around 1.1480 (78.6% expansion) to 1.1500 (78.6% expansion).
  • However, EUR/USD may stage a larger rebound as it snaps the series of lower highs & lows from the previous week and appears to be coming off of channel support.

Interested in watching the market reaction to the U. of Michigan Confidence survey? Sign up & Join DailyFX Currency Analyst David Song for LIVE coverage!

--- Written by David Song, Currency Analyst

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

To be added to David's e-mail distribution list, please follow this link.