Trading The University of Michigan Confidence Report With EURUSD

[DailyFx]

Trading the News: U. of Michigan Confidence
What is Expected
Time of release: 10:00 EST, 14:00 GMT 8/17/2007
Primary Pair Impact : EUR/USD
Expected: 88.0
Previous: 90.4








How To Trade This Event Risk
With the market in its current state (global equities falling, yields doing the same, investors struggling for liquidity and everyone seeking a safe haven for their capital), is there any room for fundamentals? It is impossible to say, but being prepared for a possible event-driven trade would be wise regardless. Heading into the Friday release of the University of Michigan?s preliminary survey of consumer sentiment, the official forecast is calling for a print of 88.0. This would be a modest pull back from the five-month high set in July; but it wouldn?t set any records itself. However, an upset could certainly take advantage of high volatility in the markets. In recent days, all the aforementioned exogenous factors have stoked a heated debate over what the Fed?s next move will be. Certainly, consumer optimism and spending habits will be central to this argument and could add to the dovish turn or encourage confidence that the central bank will continue to hold out for inflation alone. Trying to discount this report is difficult as gasoline prices are lower and employment is still strong, though this could easily be offset by the state of the stock market. Furthermore, the action in global equity markets the day of the release should be accounted for if a trade is triggered.
An upside surprise would add fundamental fuel to an already strong dollar rally. However, the impact could be limited since the dollar has already rallied so heavily in the past two weeks. As such, an upside surprise should be significant. A print that beats the July figure would be good, but one that comes in above January?s multi-year high 96.9 would be optimal (though it is highly unlikely). If there is the fundamental impetus and price action confirms a short, the trade should be structured around the technical and the extent of the surprise. A considerable surprise can support a more distant objective, while a small one should not look for much in terms of a decline.
With the dollar having already gained significantly, a weak sentiment report could fuel a rebound in EURUSD. As with the dollar-positive scenario, the bigger the divergence from the forecast, the greater the expected reaction from the dollar. With the fundamental kindling and a five-minute green bar as the spark, a long position should be taken, both with stops set at the nearby swing low (if this is too far away, a decent fixed-distance could substitute). The objective for the first lot should be equivalent to the risk taken, which will in effect fund the second half of the trade. When the first half takes profit, move up the stop on the second to break even. Discretion should be used in determining its target. For example, it may be shifted lower if equities are moving adversely.