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Strong U. of Michigan Confidence Survey to Fuel Bearish EUR/USD Series

Strong U. of Michigan Confidence Survey to Fuel Bearish EUR/USD Series

David Song, Strategist

- U. of Michigan Confidence Survey to Increase for First Time Since October.

- 12-Month Inflation Expectations Currently Sit at 2.7%- Highest Reading for All of 2017.

Trading the News: U. of Michigan Confidence

DailyFX Calendar

A meaning rebound in the U. of Michigan Confidence survey may fuel the recent series of lower highs & lows in EUR/USD as it encourages the Federal Open Market Committee (FOMC) to further normalize monetary policy over the coming months.

Data prints highlighting an improved outlook for the U.S. economy may push the FOMC to deliver a March rate-hike as ‘many participants judged that the proposed changes in business taxes, if enacted, would likely provide a modest boost to capital spending.’ In turn, the Fed may utilize the January 31 interest rate decision to prepare U.S. and households for higher borrowing-costs, with the dollar at risk of exhibiting a more bullish behavior as the central bank appears to be on course to deliver three rate-hikes in 2018.

However, a below-forecast print may spark a bearish reaction in the greenback as the FOMC faces a threat of completing its hiking-cycle ahead of schedule. New to trading? Review the ‘Traits of a Successful Trader’ series on how to effectively use leverage along with other best practices that any trader can follow.

Impact that the U. of Michigan Confidence survey has 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)

DEC P

2017

12/08/2017 15:00:00 GMT

99.0

96.8

+5

+13

December 2017 U. of Michigan Confidence

EUR/USD 5-Minute Chart

EUR/USD Chart

The U. of Michigan Confidence survey unexpectedly weakened in December, with the index narrowing to 96.8 from 98.5 the month prior. At the same time, the gauge for future expectations slipped to 84.6 from 88.9, while 12-month inflation expectations climbed to an annualized 2.8% from 2.5% in November.

The mixed developments generated a muted reaction, with EUR/USD consolidating throughout the North American trade to end the day at 1.1769. For additional resources, download and review the FREE DailyFX Advanced Guide for Trading the News to learn our 8 step strategy.

EUR/USD Daily Chart

EUR/USD Daily Chart

Want more insight? Sign up & join DailyFX Currency Analyst David Song LIVEto cover the market reaction to the U. of Michigan Confidence survey.

  • The failed attempt to break above the 1.2320 (23.6% retracement) to 1.2370 (61.8% expansion) region raises the risk for a near-term pullback in EUR/USD as the pair starts to carve a series of lower highs & lows.
  • Need a break/close below 1.2130 (50% retracement) to open up the 1.1960 (38.2% retracement) region, with the next downside area of interest coming in around 1.1810 (61.8% retracement).
  • Keeping a close eye on the Relative Strength Index (RSI) as it slips below 70 and flashes a textbook sell-signal, but the broader out for EUR/USD remains constructive as both price and the momentum indicator preserve the upward trends carried over from late last year.

--- 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.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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