What’s Expected
Time of release: 06/24/2008 14:00 GMT, 10:00 EST
Primary Pair Impact : EUR/USD
Expected: 56.4
Previous: 57.2

How To Trade This Event Risk

Confidence among Americans is expected to continue to have continued falling in June. Economist are expecting that the Conference Board’s reading will decline to 56.4 from 57.2 the month prior. Although the financial markets have started to stabilize following the Fed’s bailout of Bear Stearns, the fallout from the subprime crisis is still being felt. The labor market has continued to deteriorate with the economy giving back jobs the last five months. Indeed, jobless claims have remained above the 350,000 level as more companies layoff workers. U.S. companies continue to see their margins shrink as rising oil prices and raw material costs become more difficult to pass onto consumers. Nevertheless, inflation in the country rose to 4.2% in May as prices at the pump rose over $4.00 a gallon nationally. Additionally, the expected increase in exports due to a weak dollar has failed to significantly materialize, as the New York and Philadelphia gauges saw further contraction. The chances for the Fed’s prediction of a rebound in growth during the second half of the year have greatly diminished. Yet, the concerns over rising prices have begun to outweigh the downside risk of slowing growth, which has led to traders pricing in a 33.9% chance of a quarter point rate hike at the August policy meeting in the Fed funds futures. Expectations are that the FOMC will keep rates unchanged at Wednesday’s meeting. U.S. housing and manufacturing data will cross the wires before and during the sentiment release and are expected to contribute to the bearish picture.

The last consumer sentiment report actually showed an improvement in the New England and mountain regions for the first time in six months. If the outlook improves in a few other regions then we may see overall confidence improve. We will look for a rebound in confidence of 60 for a dollar bullish trade(Short EUR/USD). Thus, we will look for a five-minute red candle to trigger a short on two lots. The initial stop will be set above the nearby swing high (or reasonable distance) and our first profit 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.

Alternatively, a dour confidence reading will fuel the growing pessimistic outlook for the U.S. economy, which is being generated by rising inflation and an ever sinking housing market. Therefore, an inline print or worse should trigger dollar bearish sentiment and we will follow the same strategy as above, just in reverse, for a long.

Jamie Saettele is a Technical Currency Analyst for FXCM.