Consumer confidence in the U.S. is expected to improve for the second consecutive month in September, with economists forecasting the index to rise to a 15-month high of 57.0 from 54.1 in August, and the rebound in household sentiment is likely to stoke increased demands for the dollar as the outlook for future growth improves.
[U][B]Trading the News: US Consumer Confidence[/B][/U]
[B][U]What’s Expected [/U][/B]
Time of release: [B]09/29/2009 14:00 GMT, 10:00 EST [/B]
Primary Pair Impact : [B]EURUSD [/B]
Expected: 57.0
Previous: 54.1
[U][B]Effects of US Consumer Confidence has had on EURUSD for the past 2 months[/B][/U]
[B]What To Look For Before The Release [/B]
Traders with access to market depth information via the FXCM Active Trader Platform may use it to gauge the potency of the economic data release as well as to shed some light on the market’s directional bias. Increasing volume ahead of the announcement will telegraph likely follow-through behind whatever move is to materialize, while an imbalance in available liquidity on the Bid versus the Offer side of the market will tell us the direction major institutions are likely favoring ahead of the announcement:
[B]How To Trade This Event Risk[/B]
Consumer confidence in the U.S. is expected to improve for the second consecutive month in September, with economists forecasting the index to rise to a 15-month high of 57.0 from 54.1 in August, and the rebound in household sentiment is likely to stoke increased demands for the dollar as the outlook for future growth improves. The preliminary GDP reading showed economic activity slipped at an annual pace of 1.0% in the second quarter amid expectations for a 1.5% contraction, with personal consumption falling at a slower pace than initially expected, and the extraordinary efforts taken on by the government should continue to support the ailing economy as policy makers see the nation emerging from the worst recession since the post-war period. A report by the Commerce Departmentshowed retail sales jumped 2.7% in August, with domestic vehicle sales rising to an annualized pace of 14.1M from 8.4M in July, and households may ramp up their willingness to spend as growth prospects improve. At the same time, the U. of Michigan confidence survey increased to 73.5 from an initial forecast of 70.2, which is the highest reading since January 2008, while Non-Farm payrolls fell less-than-expected for the second consecutive month in August, and the data reinforces an enhanced outlook for private-sector spending as policy makers anticipate economic activity to stabilize throughout the second-half of the year. However, a report by the Federal Reserve showed consumer credit plunged at an annual rate of $21.6B in July to mark the biggest drop on record, while the Beige Book said household spending staying relatively “flat” during July and August as “credit standards remained tight” in most regions, and consumers may curb their temperament to spend as policy makers anticipate the jobless rate to reach 10% during the first-half of the following year. Nevertheless, Fed Chairman Ben Bernanke said that “the recession is very likely over” during a speech earlier this month, but held a caution tone as he expects unemployment to remain elevated as he sees a risk for a slower recovery. At the same time, President Barack Obama anticipates the economy “to start growing again” as financial conditions improve, but went onto say that the downturn in employment “could even get a little bit worse” in the coming months as prospects for a marked recover remains limited. As policy makers anticipate the jobless rate to push higher over the coming months and maintain a cautious outlook for the economy, households may turn increasingly pessimistic as economists forecast the natural rate of unemployment to rise to 7% from 5% during the mid 1990’s.
Trading the given event risk favors a bullish forecast for the greenback as market participants anticipate consumer confidence to rise for the second month in September, and price action following the release could set the stage for a short euro-dollar trade as the outlook for future growth improves. Therefore, if the index increases to 57.0 or higher from the previous month, we will look for a red, five-minute candle following the release to generate a sell entry on two-lots of EUR/USD. Once these conditions are met, will place our initial stop at the nearby swing high, or a reasonable distance taking volatility into account, and this risk will establish our first target. Our second target will be based on discretion, and we will move the stop on the second lot to breakeven once the first trade reaches its target in order to preserve our profits.
In contrast, fears of a slower recovery paired with the ongoing weakness in the labor market may lead households to lower their outlook for the economy, and an unexpected drop on consumer confidence is likely to drag on the exchange rate as investors weigh the prospects for a sustainable recovery. As a result, if the index falls back to 49.0 or lower in September, we will favor a bearish outlook for the greenback, and will follow the same setup for a long euro-dollar trade as the short position mentioned above, just in reverse.
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[I]To discuss this report contact David Song, Currency Analyst: <[email protected]>[/I]