The EUR/USD currency pair resumed its downward march on Tuesday, dipping under the 1.1350 level. This drop occurred despite positive consumer confidence data out of the United States being released the same day. In this context, the data pointed to a clear rebound in sentiment among American households. The positive numbers from the US helped the US Dollar firm against its peers. This especially held back the Euro, capping any chance of a positive response in the EUR/USD cross.
On Tuesday’s American session, the EUR/USD pair continued failing to regain back any of the ground lost. The May report showed an unexpected jump in consumer confidence. This stimulus was key to maintaining Dollar strength. Indeed, market optimism was the direct engine behind the Euro’s surprising performance. Investors jumped on the news, sending its value skyrocketing.
Key Data Points from the US
And the consumer confidence numbers released that week reflected the phenomenal recovery that had occurred for American families. Having passed through five straight months of decreases, consumer confidence jumped up 12.3 points to 98.0 in May. This change in trend marks a much more optimistic picture for consumers, a welcome sign given the recent economic turbulence.
In addition to PRHI’s own data, this report features the Present Situation Index. It spiked to 135.9, its highest point in three months. This index is an indicator of how consumers perceive the present business and labor market situation. Its rise is a sign that families are getting more confident about their fiscal fortunes.
So, despite this discouraging data, analysts are still hesitant to read too much into trends in retail spending. April’s retail spending numbers are still a mystery. Or they can illustrate how some households are scrambling to adapt to the pace of change. Regardless, the broader rebound in consumer sentiment has been a shot in the arm to an economy that sorely needed it.
Impact on the EUR/USD Pair
The downside in the EUR/USD currency pair through 1.1350 is a perfect example of just how sensitive the pair has gotten to US economic data’s downside surprises. The US Dollar is suddenly more resilient, as yesterday’s strong consumer sentiment report helps support the currency. This relative strength has capped the Euro’s upside potential. In turn, traders have raced to position themselves, reflecting a new sensitivity and correlation to underlying economic indicators.
Further, the US Dollar continues to be strong against other currencies, including the Euro. Market participants are eagerly watching new developments from both economies. Retooling for a competitive future All of this is great news for the US economy. At the same time, the Eurozone continues to suffer from deflationary pressures, which weighs on the EUR/USD pair.
Some analysts point out that in-spite of stronger positive US data supporting a stronger Dollar, uncertainties still persist about the worst-case scenarios for Eurozone economic prospects. The broader economic picture will remain an important source of direction for currency traders and impacts on sentiment for the coming weeks.
Future Outlook
Going forward, currency analysts continue to expect that continued increases in consumer confidence will bolster US Dollar strength. In general terms, so long as the US consumer remains resilient, that should act as a tailwind for the USD against its peers. On the other hand, any worsening of economic fundamentals in the Eurozone will increase the downward drag on the Euro.