The Conference Board’s consumer confidence index is anticipated to weaken significantly as fears of a global recession intensify. Economists expect the index to fall to 52.0 from 59.8 in September, indicating that consumers are becoming increasingly downbeat towards the economy as employment opportunities dissipate.
Trading the News: US Consumer Confidence
What’s Expected
Time of release: 10/28/2008 14:00 GMT, 10:00 EST
Primary Pair Impact : EURUSD
Expected: 52.0
Previous: 59.8
Impact the US Confidence Survey had on EURUSD the past 3 months
September 2008 US Consumer Confidence
Consumer confidence measured by the Conference Board jumped to 59.8 from 56.9 in August despite a median forecast of 55.0. Amid the unexpected improvement, economists expect conditions to only get worse as increasing number of financial institutions find themselves in troubled waters. The failure of Washington Mutual and the takeover of Wachovia have heightened growth concerns in recent weeks, and the crisis may deepen over the following weeks as the Congress failed to pass the Treasury’s $700B rescue plan. The outlook for the world’s largest economy have turn increasingly bleak as policymakers have yet to meet on common grounds, and will only prolong the necessary actions needed in order to stave off further downturns in the economy.
August 2008 US Consumer Confidence
The U.S. consumer confidence index increased for the second consecutive month to 56.9 from 51.9 in July, which crossed the wires much stronger than the 53.0 estimate projected by economists. The recent pullback in oil prices have certainly helped to improve consumer sentiment, but the ongoing weakness in the housing market paired with fading labor demands have raised speculation that economic activity will remain subdued for the rest of the year. The lack of improvement in the U.S. paired with the slowdown in the global economy suggests that private-sector consumption may falter as growth prospects deteriorate, which could lead the Fed to focus on growth as falling oil prices limit upside risks for inflation.
July 2008 US Consumer Confidence
The Conference Board’s consumer confidence index inched higher from a 16 year low to 51.9 from a revised reading of 51.0 in June despite a median forecast of 50.1. The lack of recovery in the housing and credit sector paired with the downturn in the labor market have certainly heightened growth concerns for the U.S., and conditions may only get worse as the effects of the fiscal stimulus plan wears off. Fading growth prospects for the world’s largest economy has already stoked fears that economic activity will deteriorated throughout the second half of the year, which could lead consumers as well as businesses to cutback on spending as they continue to face higher living costs.
How To Trade This Event Risk
The Conference Board’s consumer confidence index is anticipated to weaken significantly as fears of a global recession intensify. Economists expect the index to fall to 52.0 from 59.8 in September, indicating that consumers are becoming increasingly downbeat towards the economy as employment opportunities dissipate. Mounting growth fears for the world’s largest economy have pushed consumers to cutback on consumption as retail spending fell 1.2% in September for the third straight month, despite the sharp pullback in gas prices. In addition, the ongoing weakness in the labor market have also stoked increased fears as employment demands slumped throughout the year. Non-farm payrolls fell for the ninth consecutive months in September as the nation lost 159K jobs from the previous month, which suggests that economic activity will remain subdued for the rest of the year as job openings become increasingly scarce. Meanwhile , just two weeks earlier we saw the preliminary reading of the U. of Michigan confidence index fail to meet expectations as it slip to its lowest level since recordkeeping began in 1978, signaling that consumer confidence is deteriorating at a faster pace as the credit crunch spreads throughout the global economy. Despite the extraordinary moves by the FOMC this month, market participants expect the MPC to ease policy further as Fed Funds Futures are showing that there is a 100% chance for a rate cut this week. The report showed that the markets priced in a 54% chance that the central bank will lower rates by 50bp to 1.00%, while there is a 46% chance of a 75bp cut to 0.75%. Expectations for lower borrowing costs paired with a dour outlook may spur volatility for the U.S. dollar, but price action for the given event risk could be muted as the greenback continues to benefit from its safe haven status.
Despite the ongoing turmoil in the U.S., the recent pullback in gas prices may help Americans to deal with the slowdown in the domestic economy, which could prevent consumer sentiment from plummeting lower. Therefore, a better than expected reading would favor a long dollar trade (short EURUSD), and we will look for a red, five-minute candle following the release to generate a short trade on two lots of the euro-dollar. Our initial stop will be placed at the nearby swing high (or reasonable distance), and our first target will equal this risk. Our second objective will be based on discretion and to preserve profit, we will move the stop on the second lot up to break even when the first lot hits its target.
However, a fall in sentiment will continue to fuel a dour outlook for the U.S. economy, but given the current bullish dollar sentiment, the indicator may need to drop significantly in order to impact price action. Therefore we would look for a for a drop below the 52.0 to trigger dollar bearish sentiment and we will follow the same strategy for the short dollar trade as the long position mentioned above, just in reverse.