[B][U]Trading the News: U. of Michigan Confidence [/U][/B]
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[B][U]What’s Expected[/U][/B]
Time of release: [B]05/16/2008 14:00 GMT, 10:00 EST[/B]
Primary Pair Impact[B] : EURUSD[/B]
Expected: 62.0
Previous: 62.6
[B]How To Trade This Event Risk[/B]
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The confidence of the U.S. consumer has been battered by the housing slump, credit crunch and rising prices. The declining housing market has long been a source of concern, but now that the effects of it are filtering through to the labor markets, which may sink confidence lower. The labor market has given back jobs in four consecutive months, at a time when Americans are battling rising prices at the pump and supermarket. The recent record setting pace of oil has grabbed headlines and dimmed the hope for declining gas prices, discouraging consumers further as they start to plan their summer vacations. However, consumers may get a lift from the $107 billion dollar stimulus package that started going out last month, with individuals getting $600 and families $1200 and above. Retailers have already started to reap the benefits as retail sales ex autos surprisingly rose 0.5% in April against expectations of 0.2%. Additionally, equity markets have rebounded with the Dow rising nearly 1,100 points since March,10. The increasing wealth may offset the disappointment from sinking housing values. Nevertheless, as long as the housing sector continues to falter, it will remain an albatross for the economy and psyche of the consumer. Therefore, be aware of the preceding housing starts and building permits releases, as continued deterioration in those numbers may be an indicator for the confidence survey or may offset its impact. Continued weakness in housing and confidence combined with inflation easing to 3.9%, may open the door for another Fed cut.
There is little anticipation for an improvement in consumer confidence, therefore, a strong improvement may catch the market off guard and lead to a rally from the greenback. Economists are looking for a moderate drop in the sentiment gauge to 62.0 from 62.6 the month prior. Despite the surprise factor in a stronger-than-expected report, we will still look for a significant increase from the indicator (5 points or more) and cooperating housing data before considering a long dollar (short EURUSD) position. With the right fundamentals and a red five minute candle, we will go short two lots with a stop above the nearby swing high (or reasonable distance). Our first target will equal the risk and the second will be set by discretion. To conserve profit on a winning trade, we will move the stop on the second lot to break even when the first takes profit.
On the other hand, with the dollar rally stalling a drop in confidence could lead to further weakness, as Euro bulls look to make a stand. We will look for an equivalent disappointment for a short and follow the same strategy as above, just reversed.
