Dollar Falls on Lowest Consumer Sentiment in 28 Years

Includes: UDN, UUP
by: Grace Cheng

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.