US Dollar Weakens On Drop In UoM Consumer Sentiment Index

US Dollar Weakens On Drop In UoM Consumer Sentiment Index
August 19, 2019

 

The greenback fell against the euro on Friday after the University of Michigan consumer sentiment data did not meet analysts’ expectations. The decline in housing starts also fueled the US dollar’s weakness. However, the euro was unable to record considerable gains against the US dollar as the Eurozone is struggling with sluggish growth. In the past 24 hours, the EUR/USD pair has declined from a high of 1.1114 to a low of 1.1066 before recovering to 1.1103.

According to a preliminary report published by the University of Michigan, consumer sentiment in the US considerably worsened in August. The report indicates that consumer sentiment index plunged to 92.1 in August after nudging up to 98.4 in July. Economists had anticipated the index to decline to 97.20. Notably, this is close to the lowest level of 91.2 recorded in January.

Likewise, the current economic conditions index fell to 107.40 in August, from 110.70 in July, recording its lowest level since late 2016. The index of consumer expectations also fell sharply to 82.3 in August, from 90.5 in July.

The slump in consumer sentiment has come at a time when there are worries about the impact of import tariffs on Chinese imports and also the justification behind the Federal Reserve’s interest rate cut.

Commenting on the drop in consumer sentiment, Richard Curtin, chief economist at Surveys of Consumers, said: “The main takeaway for consumers from the first cut in interest rates in a decade was to increase apprehensions about a possible recession.”

Curtin explained the possible reason for the decline in consumer spending: “Consumers concluded, following the Fed’s lead, that they may need to reduce spending in anticipation of a potential recession.”

The economist further opined that even though consumers may decrease spending, the economy will not enter recession at least until mid-2020.

The report also pointed out that inflation is expected to reach 2.7% in August, from 2.6% in July. Likewise, five-year inflation is expected to inch upwards to 2.6%, from 2.5%. The Commerce Department also released data shown an unanticipated decline in housing starts in July. However, the report reflected a higher-than-anticipated rise in building permits.

The document stated that housing starts fell by 4% to an annual rate of 1.191 million from the prior month estimate of 1.241 million. The decline raised eyebrows among economists who had anticipated housing starts to increase by 0.3% to 1.257 million, from the 1.253 million reported in the earlier month.

The unanticipated decline in housing starts reflected the multi-family starts’ 16.2% decline to 315,000 units, more than negating a 1.3% rise in single-family states to 876,000 units.

In the meantime, the Commerce Department stated that building permits increased by 8.4% to 1.336 million units in July, from 1.232 million units in June. Economists had anticipated building permits, a measure of future housing demand, to increase 4.1% to 1.270 million, from 1.220 million reported for last month.

While multi-family permits increased by 21.8% to 498,000 units, single-family permits jumped 1.8% to 838,000. Likewise, housing starts in July rose 0.6% y-o-y, while building permits grew by 1.5%.

The weak consumer sentiment and fall in housing starts are anticipated to keep the US dollar range-bound with slight bearish bias against the euro in the days to come.

The historical price chart indicates that the EUR/USD pair has bounded off the support at 1.075. The stochastic indicator is out of the bearish zone. As a result, we can anticipate the currency pair to move up in the short-term.

USD - technical analysis - 19th Aug 2019

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

Richard W

Richard W

Richard is the guy who know everything there is about the financial industry, working in a top firm for over 15 years, he will give the lowdown on some of the biggest companies in the world


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