News Column

EUR/USD Risks Another Test of Key Support as U. of Michigan Improves

May 16, 2014

David SongGregory Marks

- U. of Michigan Confidence to Improve for Second Consecutive Month.

- Print of 84.5 Would Mark the Highest Reading Since July.

Trading the News: U. of Michigan Confidence

A second straight rise in the U. of Michigan Confidence survey may spur a further decline in the EUR/USD as the ongoing improvement in the world's largest economy puts increased pressure on the Federal Reserve to normalize monetary policy sooner rather than later.

What's Expected:

EUR/USD U. of Michigan Confidence

Why Is This Event Important:

Despite expectations for a rate hike in 2015, a further pickup in household sentiment may undermine the Fed's scope to retain the zero-interest rate policy (ZIRP) well into the following year, and a positive development may help to paint a more bullish outlook for the dollar as it raises the outlook for growth and inflation.

Expectations: Bullish Argument/Scenario




Consumer Credit (MAR)



Change in Non-Farm Payrolls (APR)



ADP Employment Change (APR)



The ongoing improvement in the labor market along with the expansion in private sector lending may encourage a further pickup in consumer sentiment, and a better-than-expected print may generate a more bearish outlook for the EUR/USD as it raises the prospects for a stronger recovery.

Risk: Bearish Argument/Scenario




Consumer Price Index Core (YoY) (APR)



Average Hourly Earnings (YoY) (APR)



Personal Consumption Expenditure Core (YoY) (MAR)



However, sticky inflation paired with subdued wage growth may drag household confidence, and a dismal U. of Michigan release may spur a more meaningful rebound in the EUR/USD as drags on interest rate expectations.

How To Trade This Event Risk(Video)

Bullish USD Trade: U. of Michigan Survey Advances to 84.5 or Higher

  • Need to see red, five-minute candle following the release to consider a short trade on EURUSD
  • If market reaction favors a long dollar trade, sell EURUSD with two separate position
  • Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward
  • Move stop to entry on remaining position once initial target is hit; set reasonable limit

    Bearish USD Trade: Household Confidence Falters

  • Need green, five-minute candle to favor a long EURUSD trade
  • Implement same setup as the bullish dollar trade, just in the opposite direction

    Potential Price Targets For The Release

    EUR/USD Daily

    EUR/USD Daily Chart
  • Fails to Retain Bullish RSI Momentum- Close Below Support to Favor Bearish Outlook
  • Interim Resistance: 1.3960-70 (61.8% expansion)
  • Interim Support: 1.3650 (78.6 expansion) to 1.3660 (23.6 retracement)

    Read More:

    USD/JPY Needs Close Below 101.50 to Favor Bearish Forecast

    Sea Change in Central Bank Policy Leaves EUR/JPY, GBP/JPY Vulnerable

    Impact that the U. of Michigan Confidence has had on EUR/USD during the last release


    Data Released



    Pips Change

    (1 Hour post event )

    Pips Change

    (End of Day post event)

    APR P


    04/11/201413:55 GMT





    April 2014 U. of Michigan Confidence Survey

    EUR/USD Chart

    The University of Michigan Confidence survey beat estimates last month coming in at 82.6 vs. 81.0 expected. The figure has failed to break 86 since 2007. Although not a large market mover, any major deviation from expectations could add to pressure on the greenback.

    --- Written by David Song, Currency Analyst and Gregory Marks

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    Source: DailyFx

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