Will The U.S. Consumer, Fuel Dollar Bulls?
The Conference Board’s consumer confidence survey has proven to be a potential market mover over the past two months. Although, with a week full of significant event risk including an FOMC rate decision, GDP and NFP’s, the markets may overlook the indicator.
Nevertheless, the state of the U.S. consumer is a significant barometer for the health of the economy. Americans level of optimism is expected to have declined in April as the squeeze from rising gasoline and food prices continues to pinch families pocketbooks.
The declining labor market, which has seen the economy lose over 80K jobs the last two months, and the further deteriorating housing market will most likely keep consumers pessimistic for sometime. If the University of Michigan’s recent 26 year low reading of 62.6 is any barometer than the upcoming consumer confidence reading may fall below last month’s five year low.
The expected dour fundamental data may not have a significant affect on price action as bullish dollar sentiment continues to swell with the expectation that the Fed will pause it easing policy after the next rate decision.
The clear sentiment is that consumer confidence will continue to fall. Although, the recent 0.2% increase in retail sales and the decline in jobless claims from 372 to 342 are signs that a bottom may be forming. Also, considering the considerable measures by the Fed and the U.S. government, the current sentiment is that worst of the credit crisis is over.
This belief has provided support for equities which is has significant influence on consumer sentiment. Traders may look to use this release as an early indicator for the FOMC rate decision , and an upside surprise as an dollar long entry opportunity. Therefore we will look for a rebound in confidence of 68 or better, to generate price volatility as dollar bulls look to build on last week’s momentum.
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 severe drop in confidence could erase any thoughts that the worst is behind the U.S. economy and a more prolonged downturn lies ahead. Considering the significance of resistance above, we will look for an equivalent surprise; and we will follow the same strategy as above, just in reverse, for a long.
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