EUR/USD: Trading the U.S. Consumer Confidence Report

Trading the News: U.S. Consumer Confidence

What’s Expected:

Time of release: 06/28/2011 14:00 GMT, 10:00 EST

Primary Pair Impact: EURUSD

Expected: 61.0

Previous: 60.8

DailyFX Forecast: 58.0 to 62.0

Why Is This Event Important:

The Conference Board’s consumer confidence index is expected to rebound from a six-month low in June, and the improvement in household sentiment could spark a bullish reaction in the U.S. dollar as growth prospects improve. As the Federal Reserve expects the economic recovery to gather pace in the second-half of the year, Americans may raise their outlook for the economy, and the central bank may see scope to further withdraw monetary stimulus in 2011 as growth and inflation pick up. However, as there appears to be a major shift away from risk taking behavior, trading the given event risk may not be as clear cut as some of our previous trades, and market sentiment could ultimately drive U.S. dollar price action through the event.

Recent Economic Developments

The Upside

Release

Expected

Actual

Durable Goods Orders (MAY)

1.5%

1.9%

Leading Indicators (MAY)

0.3%

0.8%

Consumer Credit (FEB)

$5.000B

$6.247B

The Downside

Release

Expected

Actual

Personal Income (MAY)

0.4%

0.3%

U. of Michigan Confidence (JUN P)

74.0

71.8

Change in Non-Farm Payrolls (MAY)

165K

54K

The rebound in U.S. durable goods paired with the ongoing expansion in consumer credit suggests certainly reinforces an improved outlook for household confidence, and a marked rebound in consumer sentiment could encourage the Fed to adopt an improved outlook for future growth. However, subdued wage growth paired with the ongoing weakness in employment may leave Americans to turn increasingly pessimistic towards the economy, and the central bank may retain the expansion in monetary policy throughout the remainder of the year in order to stem the downside risks for the economy. In turn, the FOMC may continue to endorse record-low interest rate in the second-half of 2011, and Chairman Bernanke may retain a dovish tone for future policy as the fundamental outlook remains clouded with uncertainties.

Potential Price Targets For The Release

How To Trade This Event Risk

Expectations for a rebound in household sentiment encourages a bullish outlook for the greenback, and the market reaction to the confidence report could set the stage for a long U.S. dollar trade as growth prospects improve. Therefore, if the index advances to 61.0 or higher in June, we will need a red, five-minute candle following the release to establish a sell entry on two-lots of EUR/USD. Once these conditions are fulfilled, we will set the initial stop at the nearby swing high or a reasonable distance from the entry, and this risk will generate 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 reaches its mark in an effort to preserve our profits.

In contrast, household confidence may deteriorate further give the ongoing weakness within the private sector, and the central bank may look to support the economy throughout the remainder of the year in order to stimulate growth. As a result, if the gauge unexpectedly weakens from the previous month, we will carry out the same setup for a long euro-dollar trade as the short position laid out above, just in reverse.

Impact that the U.S. Existing Home Sales report has had on USD during the last month

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

MAY 2011

05/31/2011 14:00 GMT

66.6

60.8

-36

-16

May 2011 U.S. Consumer Confidence

Household sentiment in the U.S. slipped to a six-month low in May, with the Conference Board index falling back to 60.8 from a revised 66.0 in the previous month, and the drop in confidence certainly dampens the outlook for the world’s largest economy as private sector consumption remains one of the leading drivers of growth. As households cope with higher food and energy costs paired with the ongoing weakness in the labor market, consumer spending may deteriorate over the coming months, and the Federal Reserve looks poised to retain its zero interest rate policy throughout the remainder of the year in an effort to encourage a sustainable recovery. However, as the FOMC plans to withdraw the additional $600B in quantitative easing, the shift away from risk-taking behavior should gather pace, and the greenback may appreciate against its major counterparts as it benefits from safe-haven flows. The dismal confidence report certainly weighed on trader sentiment, which sparked a bullish reaction in the greenback, but the reserve currency lost ground during the North American trade as the exchange rate settled at 1.4396 at the end of the day.

Join Currency Analyst David Song in the DailyFX Trading Room to cover the event LIVE!

Similar Posts:

• EUR/USD: Trading the U.S. U. of Michigan Confidence Survey
• EUR/USD: Trading the U. of Michigan Confidence Survey
• EUR/USD: Trading the U.S. Housing Starts Report
• EUR/USD: Trading the U.S. ISM Manufacturing Report
• EUR/USD: Trading the U.S. Non-Farm Payrolls Report