You’ve heard of Forex consumer confidence, consumer confidence index (CCI), consumer sentiment, etc., haven’t you?
Well… You can find out more about it here, especially if you’re wondering how, or under which circumstances this data release affects currency markets.
But if you don’t know squat about what CCI is, then jump to the next section.
As always, I go over an introduction to the concept in question, so you know what the hell we’re talking about.
And of course, I’ll hit the more Forex-focused aspects in a later section.
The consumer confidence report or consumer confidence index (CCI) is just a way of gauging how consumers perceive the economy to be doing now.
Consumers also answer how they think things will be in the future (say 6 months from now).
This report is useful for investors who want to consider doing business in a country.
Strong consumer confidence is linked to strong consumption (demand of goods and services), and as such, it’s very reassuring to business-minded individuals.
It is also taken into consideration for other more global indexes such as country competitiveness (in business).
Politicians might also refer to this index in order to further their agendas.
You might hear them saying things such as:
“Thanks to our policies, consumer confidence has soared…”
Or “During the previous crisis (in an opposing administration) consumer confidence fell to the lowest levels since…”
Ok, I get it. Consumer confidence is useful in many areas…
how useful is the Forex consumer confidence report (or just CCI when applied to
currency markets?) for FX traders?
As usual, a data release such as this one, will have a strong impact on currency prices if the corresponding Central Bank is paying more attention to it at the moment.
But what if it isn’t?
It can still net you some pips if the report comes out particularly strong, against current sentiment.
For example, if the USD is low currently, but most economists expect the Dollar to pick up, then a strong Forex consumer confidence report might signal a pickup in the trend.
However, in most circumstances, the effect on price for such an example will be limited.
report is very relative in nature, and as such, traders may not take it
Recent reports in the United States have come out strong, however, consumption has not picked up, which begs the question:
If people are confident, why aren’t they buying more?
And this shows how far away this economic release is from rate decisions (the real currency movers).
This report signals what consumption might do.
Consumption signals what growth might be.
Growth signals whether an economy is moving too slow or too fast.
And this fast or slow state might be taken in consideration for an interest rate decision by a Central Bank.
See how many steps we have to go through?
That’s why these reports are useful, but you shouldn’t bet the farm on them.
Like I mentioned in other pieces, the more removed a piece of data is from interest rate decisions, the less important It’ll be.
With that said, the consumer confidence index is still among the most useful pieces of data (considering the hundreds of possibilities).
This is why it’s considered a part of the famed tier 1 data group.
So pay attention to it when the time is ripe, but don’t normally expect too much from it.
Hope that helps,
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