Paxforex – Consumer Confidence to Decline

Tomorrow forex traders will be presented with two key data points which may heavily influence the EURUSD currency pair. The size of the move depends on the data and if it delivers a big positive or negative surprise or if it comes in as expected. Forex traders should be prepared for knee-jerk reactions to the data.

Here are the two key data points you need to look out for in tomorrow’s session:

  • German IFO – This may have a big impact on the Euro. The general consensus expects to show an improvement in both the Business Climate as well as Current Assessment index. US Consumer Confidence – This one is expected to show a decline in US consumer confidence. Look out for a reading below 80 as it is likely to spark a wider sell-off in the USD.
  • Consumers form the backbone of the economy and traders keep a close watch on confidence data. While plenty view a decline in confidence as a negative sign for the economy, the contrarian view would buy the USD and sell the Euro on a negative surprise.

One reason for a contrarian view on confidence data is that in recent history consumers have spent more after they stated that they felt less confident about the economy and they spent less after they stated the felt more confident.

The USD has sold off quite a bit and is bound for a counter-trend move before the general weakness should continue. Traders should sell the rallies for now on the EURUSD, GBPUSD, AUDUSD and NZDUSD. Those four currency pairs offer roughly 200 – 250 pips each before they should continue to march towards 2013 highs.

The Fed decided not to taper stimulus which is USD negative as it means the Fed will print more money and further devaluate the USD. It is also a negative sigh for the economy which is also negative for the USD. Traders should be cautious trading a counter-trend move and those with less experience are best advised to sit on the sidelines and buy the dips where the USD is the quote currency.

Written by Paxforex