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Monday, 06 April 2009 16:02:11 GMT
Written by David Song, Currency Analyst
Full Article
Consumer confidence in the U.K. is expected to improve for the second consecutive month in March as policymakers take unprecedented steps to stimulate the economy however, as households face a weakening labor market paired with fears of a deepening recession, a drop in sentiment could weigh on the exchange rate as the outlook for growth and inflation falters.
Trading the News: U.K. Nationwide Consumer Confidence
What’s Expected
Time of release: 04/07/2009 23:01 GMT, 19:01 EST
Primary Pair Impact : GBPUSD
Expected: 45
Previous: 43
Effects the U.K. Nationwide Consumer Confidence had over GBPUSD for the past 2 months
February 2009 U.K. Nationwide Consumer Confidence
The U.K. Nationwide consumer confidence index unexpectedly bounced back from a record low of 40 to 43 in February as policymakers stepped up their efforts to steer the economy out of the recession, and households sentiment may continue to improve in the months ahead as the Bank of England takes unprecedented steps to mitigate the downside risks for growth and inflation. BoE Governor Mervyn King and Co. are widely anticipated to lower the interest rate to a record-low of 0.50% later this week as the economic downturn in the region intensifies, and may adopt additional tools to manage monetary policy as the key rate fall close to zero. As a result, market participants expect the central bank to purchase assets over the near to medium-term in an effort to increase the money supply, and the extraordinary efforts should help to soften the landing of the economy as the BoE employs all of its available tools to manage policy.
January 2009 U.K. Nationwide Consumer Confidence
The gauge for consumer sentiment in the U.K. fell to a record-low of 40 from a revised reading of 48 December amid forecasts for a drop to 45, and the data foreshadows a weakening outlook for private- sector spending, which is one of the biggest drivers of growth, as households turn increasingly pessimistic towards the economy. Falling home prices paired with tightening credit conditions continues to take a toll on Europe’s second largest economy, and the outlook for growth and inflation remains bleak as the labor market deteriorates at a record pace. As the region faces its worst economic downturn since World War II, the Bank of England is widely expected to lower the benchmark interest rate by another 50bp to 1.00% this week, which would be the lowest since the central bank was established in 1694, and may adopt a zero interest rate policy over the near-term as policymakers employ all of their available tools to stimulate the ailing economy.
What To Look For Before The Release
Traders with access to market depth information via the FXCM Active Trader Platform may use it to gauge the potency of the economic data release as well as to shed some light on the market’s directional bias. Increasing volume ahead of the announcement will telegraph likely follow-through behind whatever move is to materialize, while an imbalance in available liquidity on the Bid versus the Offer side of the market will tell us the direction major institutions are likely favoring ahead of the announcement:
Bullish Scenario:
If we see substantially deeper available liquidity on the Bid side of the market, this tells us that major price providers in the market are looking to buy the GBP against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bullish bias on GBPUSD ahead of the data release.
Bearish Scenario:
If we see substantially deeper available liquidity on the Offer side of the market, this tells us that major price providers in the market are looking to sell the GBP against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bearish bias on GBPUSD ahead of the data release.
How To Trade This Event Risk
Consumer confidence in the U.K. is expected to improve for the second consecutive month in March as policymakers take unprecedented steps to stimulate the economy however, as households face a weakening labor market paired with fears of a deepening recession, a drop in sentiment could weigh on the exchange rate as the outlook for growth and inflation falters. The final 4Q GDP reading for Europe’s second-largest economy showed that the annual rate of growth contracted at its fastest pace since 1980 as private-sector spending dropped 1.0% from the previous quarter, and the economic outlook continues to foreshadow a deepening downturn in the region as the labor market deteriorates at a record pace. Jobless claims in February surged 138.4K to 1.39M, which is the largest jump in unemployment since 1971, while the claimant count rate increased to 4.3% from a revised reading of 3.9% in January amid expectations for a rise to 4.0%. Furthermore, retail sales plunged 1.9% during the same period, while the annualized rate slipped to 0.4% from 3.8% in the previous month, which is the lowest level of growth since September 1995, and the data suggests that households may turn increasingly pessimistic towards the economy as growth prospects deteriorate at a record pace. At the same time, the Bank of England minutes reinforced a dour outlook for growth and inflation as the central bank expects 1Q GDP to contract at levels much like what we’ve seen in the fourth quarter, and continued to see risks for deflation but nevertheless, as the board commits GBP 75B in bond purchases to increase the money supply and pledges to hold the benchmark interest rate at the record-low for sometime, the extraordinary efforts should help to mitigate the spillover effects of the global downturn. Meanwhile, as risks trends continue to dictate price action in the currency markets, an improved consumer confidence report paired with the rise in market sentiment could boost the appeal of the British pound as market participants move into higher-yielding assets.
Expectations for a rise in household confidence favors a bullish forecast for the given event risk, and an enhanced report could help to raise the outlook for private-spending as policymakers employ all of their available tools to stimulate the ailing economy. Therefore, an in-line print or a reading above 45 would set the stage for long pound trade, and we will look for a green, five-minute candle subsequent to the release to confirm a buy-entry on two lots of GBP/USD. Once these conditions are met, we will set our initial stop at the nearby swing low (or reasonable distance), and this risk will establish our first target. Our second target will be base on discretion, and in order to preserve our profits, we will move the stop on the second lot to breakeven once the first trade reaches its target.
Conversely, tighten credit conditions paired with a weakening labor market is likely to weigh on consumer sentiment, and as economists expect the U.K. to face its worst recession since World War II, fears of a deepening recession could lead households to turn increasingly pessimistic towards the economy as the downturn in the global economy intensifies. As a result, a drop in the Nationwide index to 40 or lower would lead us to sell the British pound, and we will follow the same strategy for a short pound-dollar trade as the long position mentioned above, just in reverse.
Growth Outlook Improves - Stronger Than Expectations
Private-Spending to Fall Further – Lower Than Expectations
DailyFX provides forex news on the economic reports and political events that influence the currency market. Learn currency trading with a free practice account and charts from FXCM.
Written by David Song, Currency Analyst
Full Article
Consumer confidence in the U.K. is expected to improve for the second consecutive month in March as policymakers take unprecedented steps to stimulate the economy however, as households face a weakening labor market paired with fears of a deepening recession, a drop in sentiment could weigh on the exchange rate as the outlook for growth and inflation falters.
Trading the News: U.K. Nationwide Consumer Confidence
What’s Expected
Time of release: 04/07/2009 23:01 GMT, 19:01 EST
Primary Pair Impact : GBPUSD
Expected: 45
Previous: 43
Effects the U.K. Nationwide Consumer Confidence had over GBPUSD for the past 2 months
February 2009 U.K. Nationwide Consumer Confidence
The U.K. Nationwide consumer confidence index unexpectedly bounced back from a record low of 40 to 43 in February as policymakers stepped up their efforts to steer the economy out of the recession, and households sentiment may continue to improve in the months ahead as the Bank of England takes unprecedented steps to mitigate the downside risks for growth and inflation. BoE Governor Mervyn King and Co. are widely anticipated to lower the interest rate to a record-low of 0.50% later this week as the economic downturn in the region intensifies, and may adopt additional tools to manage monetary policy as the key rate fall close to zero. As a result, market participants expect the central bank to purchase assets over the near to medium-term in an effort to increase the money supply, and the extraordinary efforts should help to soften the landing of the economy as the BoE employs all of its available tools to manage policy.
January 2009 U.K. Nationwide Consumer Confidence
The gauge for consumer sentiment in the U.K. fell to a record-low of 40 from a revised reading of 48 December amid forecasts for a drop to 45, and the data foreshadows a weakening outlook for private- sector spending, which is one of the biggest drivers of growth, as households turn increasingly pessimistic towards the economy. Falling home prices paired with tightening credit conditions continues to take a toll on Europe’s second largest economy, and the outlook for growth and inflation remains bleak as the labor market deteriorates at a record pace. As the region faces its worst economic downturn since World War II, the Bank of England is widely expected to lower the benchmark interest rate by another 50bp to 1.00% this week, which would be the lowest since the central bank was established in 1694, and may adopt a zero interest rate policy over the near-term as policymakers employ all of their available tools to stimulate the ailing economy.
What To Look For Before The Release
Traders with access to market depth information via the FXCM Active Trader Platform may use it to gauge the potency of the economic data release as well as to shed some light on the market’s directional bias. Increasing volume ahead of the announcement will telegraph likely follow-through behind whatever move is to materialize, while an imbalance in available liquidity on the Bid versus the Offer side of the market will tell us the direction major institutions are likely favoring ahead of the announcement:
Bullish Scenario:
If we see substantially deeper available liquidity on the Bid side of the market, this tells us that major price providers in the market are looking to buy the GBP against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bullish bias on GBPUSD ahead of the data release.
Bearish Scenario:
If we see substantially deeper available liquidity on the Offer side of the market, this tells us that major price providers in the market are looking to sell the GBP against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bearish bias on GBPUSD ahead of the data release.
How To Trade This Event Risk
Consumer confidence in the U.K. is expected to improve for the second consecutive month in March as policymakers take unprecedented steps to stimulate the economy however, as households face a weakening labor market paired with fears of a deepening recession, a drop in sentiment could weigh on the exchange rate as the outlook for growth and inflation falters. The final 4Q GDP reading for Europe’s second-largest economy showed that the annual rate of growth contracted at its fastest pace since 1980 as private-sector spending dropped 1.0% from the previous quarter, and the economic outlook continues to foreshadow a deepening downturn in the region as the labor market deteriorates at a record pace. Jobless claims in February surged 138.4K to 1.39M, which is the largest jump in unemployment since 1971, while the claimant count rate increased to 4.3% from a revised reading of 3.9% in January amid expectations for a rise to 4.0%. Furthermore, retail sales plunged 1.9% during the same period, while the annualized rate slipped to 0.4% from 3.8% in the previous month, which is the lowest level of growth since September 1995, and the data suggests that households may turn increasingly pessimistic towards the economy as growth prospects deteriorate at a record pace. At the same time, the Bank of England minutes reinforced a dour outlook for growth and inflation as the central bank expects 1Q GDP to contract at levels much like what we’ve seen in the fourth quarter, and continued to see risks for deflation but nevertheless, as the board commits GBP 75B in bond purchases to increase the money supply and pledges to hold the benchmark interest rate at the record-low for sometime, the extraordinary efforts should help to mitigate the spillover effects of the global downturn. Meanwhile, as risks trends continue to dictate price action in the currency markets, an improved consumer confidence report paired with the rise in market sentiment could boost the appeal of the British pound as market participants move into higher-yielding assets.
Expectations for a rise in household confidence favors a bullish forecast for the given event risk, and an enhanced report could help to raise the outlook for private-spending as policymakers employ all of their available tools to stimulate the ailing economy. Therefore, an in-line print or a reading above 45 would set the stage for long pound trade, and we will look for a green, five-minute candle subsequent to the release to confirm a buy-entry on two lots of GBP/USD. Once these conditions are met, we will set our initial stop at the nearby swing low (or reasonable distance), and this risk will establish our first target. Our second target will be base on discretion, and in order to preserve our profits, we will move the stop on the second lot to breakeven once the first trade reaches its target.
Conversely, tighten credit conditions paired with a weakening labor market is likely to weigh on consumer sentiment, and as economists expect the U.K. to face its worst recession since World War II, fears of a deepening recession could lead households to turn increasingly pessimistic towards the economy as the downturn in the global economy intensifies. As a result, a drop in the Nationwide index to 40 or lower would lead us to sell the British pound, and we will follow the same strategy for a short pound-dollar trade as the long position mentioned above, just in reverse.
Growth Outlook Improves - Stronger Than Expectations
Private-Spending to Fall Further – Lower Than Expectations
DailyFX provides forex news on the economic reports and political events that influence the currency market. Learn currency trading with a free practice account and charts from FXCM.