U.S. Consumer Sentiment Rises, as U. of Michigan Survey Jumps to 75.0

THE TAKEAWAY: [U. of Michigan Confidence Survey at 8-month high] > [Household Sentiment Lifts] > [USDollar strengthens]

U.S. consumer sentiment rose in January, as the University of Michigan confidence survey figures advanced from 69.9 at the end of December to 75.0, the highest level since May 2011. The latest figure came in well above the anticipated increase to 74.0, boosted by the slower rate of inflation over recent months and a pickup in private sector activity.

EUR/USD 1-minute Chart: January 27, 2012

Chart created using Strategy Trader– Prepared by Tzu-Wen Chen

In the minutes following the data release, the U.S. dollar saw a significant gain against the Euro. The better-than-expected results gave the market a boost in confidence that the U.S. economic recovery will continue to gain pace.

However, while the higher household sentiment could prop up the U.S. dollar, the gaining pace of the U.S. economic recovery could limit the prospects for the Federal Reserve’s scope to conduct another round of quantitative easing. However, the ongoing ‘sluggishness’ of the housing market and slowdown in wage growth may weigh on confidence, and the Federal Reserve may show an increased willingness for further easing in an effort to encourage a sustainable recovery.

AUD/USD 1-minute Chart: January 27, 2012

Chart created using Strategy Trader– Prepared by Tzu-Wen Chen

Looking to the AUD/USD pair, a similar reaction was seen, as the U.S. dollar pared back some of its recent losses.

--- Written by Tzu-Wen Chen DailyFX Research