Press Release: EURUSD: Trading the U.S. Consumer Confidence Report

U.S. consumer sentiment is widely expected to pick up in September and a positive outcome may increase the appeal of the dollar as it dampens the Fed’s scope to expand monetary policy further.

Trading the News: U.S. Consumer Confidence

What’s Expected:

Time of release: 09/25/2012 14:00 GMT, 10:00 EDT

Primary Pair Impact: EURUSD

Expected: 63.2

Previous: 60.6

DailyFX Forecast: 62.0 to 65.0

Why Is This Event Important:

The Conference Board’s Consumer Confidence survey is expected to increase to 63.2 from 60.6 in August, and a rebound in household sentiment may prop up the U.S. dollar as it raises the outlook for growth. As the recovery gradually gathers pace, a positive development should encourage the FOMC to maintain its current policy over the medium-term, and we may see the central bank soften its dovish tone at the October 24 meeting as the world’s largest economy gets on a more sustainable path.

Recent Economic Developments

The Upside

The Downside

The persistent strength in household spending certainly instills a positive outlook for consumer confidence, and a marked rebound in the Conference Board’s survey may foster a bullish forecast for the USD as it dampens the Fed’s scope to ease policy further. However, subdued wage growth paired with the ongoing weakness in the labor market may continue to drag on household confidence, and another unexpected decline in the survey may heighten the bearish sentiment surrounding the dollar as market participants speculate the FOMC to ease policy further over the coming months.

Potential Price Targets For The Release

As the EURUSD carves out a lower top around the 38.2% Fibonacci retracement from the 2009 high to the 2010 low (1.3120-30), we will maintain our bearish forecast for the pair, and the pullback from 1.3170 should turn into a larger correction to the downside as the relative strength index comes off of oversold territory. However, a dismal confidence report may spark another run at the 38.2% Fib as the Fed keeps the door open to expand policy further, and the dollar may face additional headwinds over the near-term should the economic docket continue to show a slowing recovery in the U.S.

How To Trade This Event Risk

Forecasts for a rebound in household sentiment certainly instills a bullish outlook for the greenback, and a positive development may pave the way for a long U.S. dollar trade as market participants scale back bets for more easing. Therefore, if the print comes in at 63.2 or higher, we will need to see a red, five-minute candle following the release to generate a sell entry on two-lots of EURUSD. Once these conditions are met, we will set the initial stop at the nearby swing high or a reasonable distance from the entry, and this risk will establish our first objective. The second target will be based on discretion, and we will move the stop on the second lot to cost once the first trade hits its mark in order to preserve our profits.

On the other hand, the slowdown in wage growth paired with ongoing weakness in the labor market may continue to consumer confidence, and another dismal print may spark a bearish reaction in the greenback as it fuels speculation for additional monetary support. As a result, if the survey falls short of market expectations, we will implement the same strategy for a long euro-dollar trade as the short position mentioned above, just in the opposite direction.

Impact that the Consumer Confidence survey has had on USD during the last month

August 2012 U.S. Consumer Confidence

Consumer confidence unexpectedly weakened in August, with the Conference Board index slipping to 60.6 from a revised 65.4 the month prior, while inflation expectations for the next 12-months advanced to 5.9% from 5.4% during the same period. Indeed, the initial reaction to the dismal print was short-lived as the EURUSD quickly traded back above the 1.2550 figure, but we saw the euro-dollar consolidate throughout the North American trade as the pair ended the day at 1.2561.

— Written by David Song, Currency Analyst

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

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