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Improving U. of Michigan Survey to Propel Post-ECB EUR/USD Losses
DailyFX.com -
- U. of Michigan Confidence to Increase for Second Straight Month in December.
- 12-Month Inflation Expectations Have Held at Annualized 2.4% for Last Three-Consecutive Months.
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Trading the News: U. of Michigan Confidence
Another uptick in the U. of Michigan Confidence survey may fuel the bullish sentiment surrounding the greenback and spark further loss in EUR/USD should the data print highlight an improved outlook for the U.S. economy.
What’s Expected:
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Why Is This Event Important:
With Fed Funds Futures now pricing a greater than 95% probability for a December rate-hike, Chair Janet Yellen and Co. appears to be on course to further normalize monetary policy in 2017 as central bank officials warn the ‘case for an increase in the federal funds rate has continued to strengthen.’ Expectations for higher interest rates should keep the U.S. dollar float going into the year ahead, but a dismal development may push the Federal Open Market Committee (FOMC) to take an even more gradual approach in removing the accommodative policy stance as the central bank warns ‘inflation has increased somewhat since earlier this year but is still below the Committee's 2 percent longer-run objective.’
Expectations: Bullish Argument/Scenario
Release | Expected | Actual |
ISM Non-Manufacturing (NOV) | 55.5 | 57.2 |
Gross Domestic Product (Annualized) (3Q P) | 3.0% | 3.2% |
IBD/TIPP Economic Optimism (DEC) | 52.0 | 54.8 |
Signs of a stronger recovery may boost U.S. consumer confidence, and another pickup in the U. of Michigan survey may spark a bullish reaction in the greenback as it puts increased pressure on the Federal Reserve to implement higher borrowing-costs.
Risk: Bearish Argument/Scenario
Release | Expected | Actual |
Consumer Credit (OCT) | $18.650B | $16.018B |
Non-Farm Payrolls (NOV) | 180K | 178K |
Average Hourly Earnings (YoY) (NOV) | 2.8% | 2.5% |
However, stagnant wages accompanied by easing job growth may drag on household sentiment, and an unexpected decline in the index may produce near-term headwinds for the dollar as it drags on interest-rate expectations.
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How To Trade This Event Risk(Video)
Bullish USD Trade: U. of Michigan Confidence Index Advance to 94.5 or Greater
Need red, five-minute candle following the release to favor a short EUR/USD trade.
If market reaction favors a bullish dollar position, sell EUR/USD with two separate lots.
Set stop at the near-by swing high/reasonable distance from cost; at least 1:1 risk-to-reward.
Move stop to entry on remaining position once initial target is met, set reasonable limit.
Bearish USD Trade: U.S. Household Sentiment Survey Disappoints
Need green, five-minute candle to favor a long EUR/USD trade.
Implement same strategy as the bullish dollar trade, just in the opposite direction.
Potential Price Targets For The Release
EURUSD Daily
Chart - Created Using Trading View
Downside targets are in focus following the European Central Bank (ECB) interest rate decision, with EUR/USD at risk of working its way back towards the monthly low (1.0505) as a bear-flag formation appears to unfolding; a break/close below the 1.0500 handle (50% expansion) opens up the next downside target around 1.0410 (61.8% expansion).
Interim Resistance: 1.0780 (100% expansion) to 1.0800 (23.6% retracement)
Interim Support: 1.0500 (50% expansion) to 1.0505 (December-low)
Check out the short-term technical levels that matter for GBP/USD heading into the release!
Impact the U. of Michigan Confidence survey 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) |
NOV P 2016 | 11/11/2016 15:00 GMT | 87.9 | 91.6 | -21 | -23 |
November 2016 U. of Michigan Confidence
EUR/USD 5-Minute
Chart - Created Using Trading View
The U. of Michigan Confidence survey climbed to 91.6 from 87.2 in October, while 12-month inflation expectations held steady at an annualized 2.4% for the third-month following a downward revision from the advance reading. The ongoing improvement in household sentiment may push the Federal Reserve to follow a similar to 2015 as the central bank appears to be on course for a December rate-hike, but Chair Janet Yellen may largely endorse a wait-and-see approach for the first-half of 2017 as central bank officials warn ‘market-based measures of inflation compensation have moved up but remain low; most survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.’ The greenback gained ground following the better-than-expected print, with EUR/USD pulling back from the 1.0880 region to end the day at 1.0854.
Get our top trading opportunities of 2016 HERE
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--- Written by David Song, Currency Analyst
To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.
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