EUR/USD: Trading the US CB Confidence May 2014

CB  Consumer Confidence is based on a monthly survey of about 5,000 U.S. households regarding their opinion of the economy. Traders should pay close attention to its release, which always has a strong impact on market prices. A higher reading than the market forecast is bullish for the dollar.

Here are all the details, and 5 possible outcomes for EUR/USD.

Published on Tuesday at 14:00 GMT.

Indicator Background

CB Consumer Confidence  is an important gauge of  consumer confidence.  Increased consumer confidence  usually means an increase in  consumer spending, a key engine of economic growth.
The index has looked sharp, posting two straight readings of 82.3 points, although the last reading fell short of the estimate of 82.9 points. The markets are expecting the indicator  to increase in the April release, with the estimate standing at 83.2 points.

Sentiments and levels

There is a  strong likelihood  that we will  see action from the  ECB in June, and this is not fully priced into the value of the euro. The exchange rate is still high for the central bank and Draghi could certainly talk the euro further down if it moves towards to the key 1.40 level. In addition, more downside risks come from the recent data: forward looking PMIs fail to impress, GDP is strong only in Germany, and business confidence in the Eurozone’s number one  economy has  also disappointed.

With Sunday’s strong showings by  euro-skeptics in the European parliamentary elections, the euro could lose more ground. Even if US Q1 GDP is revised to contraction, this  is not likely to alter the path of the Fed. All in all, a fourth consecutive week of drops is more likely. So, the overall sentiment is  bearish on EUR/USD towards this release.

Technical levels, from top to bottom: 1.3740, 1.37, 1.3650, 1.3615, 1.3560 and 1.3515.

5 Scenarios    

1. Within expectations: 80.0 to 86.0: In such a case, EUR/USD is likely to remain within range, with a small chance of breaking higher.
2. Above expectations: 86.1 to 89.0: An unexpected higher reading can send the pair below one support level.
3. Well above expectations: Above 89.0: A sharp increase in consumer confidence could boost the dollar and send the pair below a second support level.
4. Below expectations: 77.0 to 79.9: A reading lower than forecast could push EUR/USD above one resistance level.
5. Well below expectations: Below 76.9: Given recent strong readings in Consumer Confidence, this scenario is unlikely. In this outcome, the pair could break  above a second  resistance level.

For more on EUR/USD, see the EUR/USD forecast.

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