[B][U]Trading the News: U. of M. Consumer Confidence Survey[/U][/B]
[B][/B]
[B][U]What’s Expected[/U][/B]
Time of release: [B]08/15/2008 14:00 GMT, 10:00 EST[/B]
Primary Pair Impact[B] : EURUSD[/B]
Expected: 62.0
Previous: 61.2
[B]How To Trade This Event Risk[/B]
The last three U. of M. sentiment reports have provided event risk for the markets and have generated significant price volatility. This release could provide equal price action if confidence falls after last month’s rebound. It would further increase fears that minus the fiscal stimulus from the government the country is indeed in a recession. Indeed, the early second quarter reading fro GDP printed at 1.9% which was lower than the expected 2.4%. Removing the approximately 1% contribution to growth from the rebate checks would leave the economy level from the 1Q 0.9% reading. Consumers plagued by inflation , which rose to a 17 year high of 5.6% in July, has curbed spending. This was evident when retail sales fell 0.1% in July, as automobile purchases fell 2.4% and gas above $4 saw Americans cut back on driving and related purchases. The declining labor market will further weigh on sentiment as the economy has lost jobs the last seven months and jobless claims have risen above 400,000 for the past four weeks. However, the stock market appeared to put in a bottom in July and hope was growing that the credit crisis was coming to an end.
There have been improvements in the manufacturing and service sectors and with equities heading higher consumer may have built upon the optimism that was generated the month prior. However, given the recent support the EURUSD has received at the 1.4850 price level a significant increase may be needed to push the pair lower. Therefore, we would look for an increase in CPI to 65 in consumer sentiment, for a long dollar position (Short EUR/USD). With a confirmed, positive fundamental release we will look for a five-minute red candle to confirm entry on two lots of EURUSD. Our initial stop will be set at the nearby swing low (or reasonable distance) and this risk will determine our first target. Our second target will be based on discretion (with a mind to major resistance in the vicinity) and to preserve profit we will move the stop on the second lot to break even when the first half of the trade reaches its target.
Gas prices above $4 a gallon has seen consumers resort to using credit to purchase every day needs, which will weigh heavy on sentiment. Additionally, as job losses mount workers become less secure in their future employment and earnings which could sink confidence. We will follow the same strategy for a short as the long above, just in reverse.
