TheNews

- U. of Michigan Confidence Survey to Rebound Following Unexpected Decline in July.
- Expected to Hold Above 80.0 for Ninth Consecutive Month.

Trading the News: U. of Michigan Confidence

A rebound in the U. of Michigan Confidence survey may generate a bullish reaction in the U.S. dollar (bearish EUR/USD) as it raises the outlook for growth and inflation.

What’s Expected:




Why Is This Event Important:

A pickup in household sentiment may spur a larger dissent within the Federal Open Market Committee (FOMC) as central bank officials look for a stronger recovery in the second-half of the year, and the Fed may show a greater willingness to normalize monetary policy sooner rather than later as the committee turns increasingly confident in achieving the dual mandate for full-employment & price stability.

Expectations: Bullish Argument/Scenario

Release	Expected	Actual
Personal Income (JUN)	0.4%	0.4%
Gross Domestic Product (Annualized) (QoQ) (2Q A)	3.0%	4.0%
Consumer Confidence (JUL)	85.4	90.9

Higher wage growth paired with marked rebound in 2Q GDP may prop up household confidence, and an upbeat U. of Michigan print may heighten the bullish sentiment surrounding the U.S. dollar as the Fed looks to move away from its easing cycle later this year.

Risk: Bearish Argument/Scenario

Release	Expected	Actual
Advance Retail Sales (MoM) (JUL)	0.2%	0.0%
Wholesale Trade Sales (MoM) (JUN)	0.7%	0.3%
Consumer Credit (JUN)	$18.650B	$17.255B

However, the slowdown in private sector credit along with the recent weakness in household consumption may warn of a further decline in consumer sentiment, and another unexpected decline in the confidence survey may trigger a near-term correction in the greenback as it drags on interest rate expectations.

How To Trade This Event Risk

Bullish USD Trade: U. of Michigan Survey Climbs to 82.5 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 Sentiment Continues to Disappoint

• 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

• Will continue to look for string of lower-highs as descending triangle takes shape.
• Interim Resistance: 1.3650 (78.6% expansion) to 1.3670 (61.8% retracement)
• Interim Support: 1.3490 (50.0% retracement to 1.3500 Pivot

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)
JUL P 2014	07/18/2014 13:55 GMT	83.0	81.3	+6	+19

July 2014 U. of Michigan Confidence Survey

The U. of Michigan Confidence survey unexpectedly weakened in July, with the index slipping to 81.3 from 82.5 the month prior, while 12-month inflation expectations climbed to an annualized 3.3% from 3.1% in June. Nevertheless, the greenback struggled to hold its ground following the dismal confidence report, with the EURUSD trading back above the 1.3500 handle, and the reserve currency continued to trade heavy throughout the North American trade as the pair ended the day at 1.3521.

--- Written by David Song, Currency Analyst


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