Will a Better Than U.S. University of Michigan Confidence Report Fuel the Dollar's Recent Rally?
U. of Michigan Confidence (14:55 GMT)
The preliminary University of Michigan confidence report in the world’s largest economy is widely expected to rise to 75.0 in February from 74.2 the month prior. Indeed, a reading in line with expectations will mark the highest level since June 2010; however, as most drivers of sentiment have pushed slightly lower as of late, I do not rule out a dismal release which could lead the dollar to erase some of Thursday’s gains. Key components that may lead to a lower confidence reading include low equity prices in January, while gasoline prices remain afloat, which does not bode well for tomorrow’s release. With regards employment, January’s mere gain of 36K paired with the unemployment rate falling to 9.0 percent from 9.4 percent in December paints a blurry picture for confidence.
Ahead of the release, it is worth noting that the U. of Michigan confidence report has fallen by approximately 4 points each February since 2000. All in all, despite the recent upbeat confidence predictions amongst economists, the Michigan confidence may surprise the forex markets with a disappointing result, and in turn lead the dollar to pare some its recent gains.
GBPUSD 1 Hour Chart
Charts Created Using FXCM’s Strategy Trader – Prepared by Michael Wright
GBPUSD: The pair looks poised to make one more attempt at the 23.6 percent Fibonacci retracement on the March 2009 to August 2009 upswing (1.6179) as the pair managed to make a slight break above its descending trend line. At the same time, it is worth noting that our speculative sentiment index stands at -1.53, providing the contrarian signal to stay long.
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Written by Michael Wright, Currency Analyst
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