Dollar Falls on Lowest Consumer Sentiment in 28 Years

The lowest confidence among American consumers in nearly 28 years caused the US dollar to fall sharply Friday against major currencies.

The Reuters/University of Michigan preliminary index of consumer sentiment fell to 59.5 in May, the lowest level since June 1980, from 62.6 in April. The May estimate was worse than the reading of 62 expected. When you compare this to last year’s average reading of 85.6, you’ll realize how downbeat US consumers are feeling right now.

Although we know that the US is on the brink of a recession, it’s still not a good sign that consumers are feeling this pessimistic. Blame it on the rising oil prices (yes, crude oil surged to another record high today, soaring toward $128/barrel) and falling home values.

Another report released today showed that total US housing starts jumped unexpectedly by 8.2% (1.4% drop expected) to 1.032 million, the biggest increase in two years. This followed a 13.8% plunge in March. While numbers look good on the surface, further scrutiny showed that the overall increase was due to a rebound in the building of townhouses and condominiums - so-called multi-family units, which are known to be quite volatile and subject to ups and downs. On the other hand, single-family home starts fell for the 12th time in a row in April, falling 1.7% to 692,000 single units at an annual rate. All in all, the US housing market still looks weak.

Forex Trading

EUR/USD rallied upon the release of US confidence data, finally breaking past its overhanging moving average towards 1.5600 at the time of writing. If it breaks above 1.5610 successfully, next bull targets are around 1.5650, 1.5690. USD/CHF fell around 100 pips after the sentiment data, declining to an intraday low around 1.0430. Actions around the support zone of 1.0390-1.0400 must be closely watched as that forms the base of the double top. If this gives way, it could target 1.0360, 1.0310.

Comments

[DaveW]

Thanks Grace, always enjoy your concise commentaries that bring together the fundamentals and psychology of the day.

[theinvestingspeculator]

With high oil prices, low consumer sentiment and falling home values I can't see way anyone would say we aren't in recession. I guest it is only the CNBC cheerleaders who don't see the recession.

[iThinkBig]

The cheerleaders denying recession comes from Washington. It's an election year, remember? Whomever is elected will largely get blamed as the next worst President in history as the economic tsunami's wash over there Administration. I also liked to thank you Grace, factual reporting without doomsday style comments. Those are reserved for human nature analysts of the cause and effects of economies like me :)

[Eagle-Chief]

Gracie - the housing market data can sure be confusing & maniputlated. It looks like they are trying to put a positive spin on negative data. Also, I thought your headline in reverse could also be very applicable today - "Consumer Sentiment Falls on Lowest Dollar in 28 Years." My sentiment is not very high currently due to high food, gasoline & energy prices. I doubt that the recent rise in the value of the dollar will last. Our monetary system has to be based on sound economic policies & not on rampant debt & financial irresponsiblilty. The people in charge of this nation's monetary policy have destroyed America & destroyed the value of our dollar.

[ussmls7]

I agree with Eagle-Chief! When the CFTC, puts out a report, "There is no way that Silver has bed manipulated by a group of 4 or more Traders" that means just the opposite! Then the words from Paulson's mouth" Let the FED, police the markets", & the SEC & States lose power as a line of defence, to protect the markets from price fixiing ,ect!
Our Congress, has let the Fed, ruin this country's monetary policy, years ago. The dollar's decline, can be traced back to the Feds birth. Look at the penny, in 1909, Lincoln was the 1st president, used on our Coined money, you can follow the trail, as more presidents, appeared on coins, when Nixon, completed the cycle of removing the Silver standard, the dollar had loss a huge amount of buying power. Now , the dollar, is a relic, history seems to repeat its self, but our leaders, refuse to see the wisdom in it! Do they care?
Rothchild, taught the Morgans, how to run a fractional Banking , Rothchild's statement, I care not who makes the laws, or inforces them, as long as I control the worlds money!! History, repeated again, 08, JP Morgan, steals Bears Stearns, with the Feds help!!

[mlambert890]

Wow... thats a lot of oversimplification in one small paragraph. Bear profited from the shell game of increasingly synthetic derivatives and was way over leveredged.

Their largest CDS partner was JPMC. Banks were starting to shut Bear out and their ability to meet their obligations was coming into serious question.

If nothing had been done at all, Bear *would* have slipped into bankruptcy and defaulted on ALL of its obligations including trillions in CDS exposure.

The real problem is that most people ranting and raving about these issues, and weighing in as "experts" and even some of those making policy, have NO CLUE what any of it means much less how one would beging to unravel this ball of string.

Synthetic instruments have become increasingly abstracted from anything approaching real value and the govt has allowed that to happen. Now there isnt enough physical capital in circulation to cover the leverage exposure. Simply allowing everything to organically meltdown so you can say there is "NO CORPORATE WELFARE" would lead to an outcome I dont think many people would like even if they are too stupid to realize it.

Rather than talking in broad conspiracies and making loose historical connections that are, when examined in detail, really vaporous, more people should take the time to try to really learn what is going on here and what lead to it.

[Will Rahal]

"Is how folks feel about the economy that matters", president Bush said. Well they ain't feeling too good.

I charted the four yardsticks used by the NBER to asses economic pain and they are not looking good either.

[Will Rahal]

Sorry, the link is
wrahal.blogspot.com/20...

[karchad]

On the contrary, consumer confidence is a classic contrarian indicator. I love this statistic, and the agreement that goes with it. No wonder the market is rising rapidly from its low... And check out homebuilders ETF's XHB and ITB, year-to-date. Confusing to the doomsdayers? Of course! That's the way it always goes!

[The Fitzman]

grace: i will tell u the same thing i just wrote to fareed zakaria on his newsweek article when he quoted a poll saying 80% of americans think the country is going "in the wrong direction". he blamed it on some of the same things you did, but i think you are both missing the point. americans are so pessimistic because they have lost faith in their government. for 8 years we've had a bush led republican "government" which has failed to adopt a rational energy policy, failed to fix a tax policy that favors the ultra wealthy, failed to support the US dollar and run up the fiscal deficit(thus leading to inflation), and conducted a foreign policy that was rightly referred to by obama today as "bombastic". and that is putting it lightly. sure the housing market and high energy prices are playing a big role, but if middle class americans thought their government was at least on their side and could play a positive role (as opposed to a the negative one we have become accustomed to), the numbers would not be nearly this bad, IMHO.

[Flathead]

It would be useful if the author would tell us WHY the dollar is falling. Ten different authors have ten different opinions.