TheNews

Trading the News: U. of Michigan Confidence

Another uptick in the U. of Michigan Confidence survey may spur a further decline in the EUR/USD amid growing speculation for a Fed rate hike in mid-2015.

What’s Expected:



Why Is This Event Important:

Positive data prints coming out of the U.S economy should continue to fuel interest rate expectations and heighten the bullish sentiment surrounding the greenback as a growing number of Fed officials scale back their dovish tone for monetary policy.

Expectations: Bullish Argument/Scenario

Release	Expected	Actual
Advance Retail Sales (MoM) (NOV)	0.4%	0.7%
Non-Farm Payrolls (NOV)	230K	321K
Average Weekly Earnings (YoY) (NOV)	2.1%	2.1%

Consumer sentiment may climb to a seven-year high on the back of faster job/wage growth, and a further improvement may generate another decline in EUR/USD amid the deviation in the policy outlook.

Risk: Bearish Argument/Scenario

Release	Expected	Actual
Consumer Credit (OCT)	$16.500B	$13.226B
Personal Consumption Expenditure Core (YoY) (OCT)	1.5%	1.6%
Consumer Price Index Core (YoY) (OCT)	1.7%	1.8%

However, we the survey may disappoint as U.S. households face sticky price pressures paired with the ongoing slack in the real economy, and a dismal print may spur a larger correction in the greenback as it drags on expectations for higher borrowing-costs.

How To Trade This Event Risk

Bullish USD Trade: U. of Michigan Survey Climbs to 89.5 or Higher

• Need to see red, five-minute candle following the release to consider a short trade on EURUSD
• If market reaction favors a long dollar trade, sell EURUSD with two separate position
• Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward
• Move stop to entry on remaining position once initial target is hit; set reasonable limit

Bearish USD Trade: Consumer Confidence Falls Short of Market Forecast

• Need green, five-minute candle to favor a long EURUSD trade
• Implement same setup as the bullish dollar trade, just in the opposite direction

Potential Price Targets For The Release
EUR/USD Daily Chart

• Failed attempts to close above 1.2450-70 may highlight near-term topping process for EUR/USD especially as the RSI largely retains a bearish momentum.
• Interim Resistance: 1.2600 pivot to 1.2610 (61.8% expansion)
• Interim Support: 1.2280 (100% expansion) to 1.2290 (38.2% expansion)

Impact that the U. of Michigan Confidence has had on EUR/USD during the last release

Period	Data Released	Estimate	Actual	Pips Change (1 Hour post event )	Pips Change (End of Day post event)
NOV P 2014	11/14/2014 14:55 GMT	87.5	89.4	+52	+100

The U. of Michigan Confidence survey unexpectedly surged to 89.4 in November from 86.9 the month prior to mark the fourth consecutive advance. Despite the uptick in sentiment, 12-month inflation expectations weakened further during the same period, with the figure slowing to an annualized 2.6% from 2.9% in October. Nevertheless, the ongoing improvement may highlight a stronger recovery for the U.S. economy as private-sector consumption remains one of the leading drivers of growth. The initial bullish dollar reaction was very short-lived as EUR/USD pushed back above the 1.2450 region following the data print, with the pair ending the day at 1.2521.

--- Written by David Song, Currency Analyst and Shuyang Ren


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