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Dismal U. of Michigan Confidence Survey to Curb U.S. Dollar Strength

Dismal U. of Michigan Confidence Survey to Curb U.S. Dollar Strength

David Song, Strategist

- U. of Michigan Confidence Survey to Narrow to 99.3 in March After Unexpectedly Picking Up the Month Prior. 12-Month Inflation Expectations Have Held Steady at Annualized 2.7% for Last Three Readings.

- EUR/USD Risks Further Losses as Exchange Rate Snaps Higher Highs & Lows, Relative Strength Index (RSI) Extends Bearish Formation.

Trading the News: U. of Michigan Confidence

DailyFX Calendar

Minor revisions in the U. of Michigan Confidence survey may spark a limited reaction, but a marked downtick in the gauge for household sentiment may spark a bearish reaction in the U.S. dollar as it curbs bets for four Fed rate-hikes in 2018.

Another batch of lackluster data prints coming out of the U.S. economy may curb the recent decline in EUR/USD as it instills a weakened outlook for growth, and the Federal Open Market Committee (FOMC) may ultimately implement a dovish rate-hike at the March 21 interest rate decision as inflation continues to run below the 2% target. In turn, a growing number of Fed officials may project a more shallow path for the benchmark interest rate as ' a couple of members expressed concern about the outlook for inflation, seeing little evidence of a meaningful improvement in the underlying trend in inflation, measures of inflation expectations, or wage growth.

Nevertheless, another above-forecast print may keep EUR/USD under pressure as Chairman Jerome Powell and Co. appear to be on course to implement higher borrowing-costs over the coming months, and the central bank may continue to strike a hawkish tone for monetary policy as ‘almost all participants continued to anticipate that inflation would move up to the Committee's 2 percent objective over the medium term as economic growth remained above trend and the labor market stayed strong.’

IMPACT THAT THE U. OF MICHIGAN CONFIDENCE SURVEY HAD ON EUR/USD DURING THE PREVIOUS PRINT

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

FEB P

2018

02/16/2018 15:00:00 GMT

95.5

99.9

+6

-35

February 2018 U. of Michigan Confidence

EUR/USD 5-Minute Chart

EUR/USD 5-Minute Chart

U.S. household sentiment unexpectedly improved in February, with the U. of Michigan Confidence survey climbing to 99.9 from 95.7 the month prior. The gauge for future expectations also increased to 90.2 from 86.3 in January, while 12-month inflation expectations held steady at an annualized 2.7% for the third consecutive month.

Despite the limited reaction, EUR/USD struggled to hold its ground during the North American trade, with the pair closing the day at 1.2409. Want more insight? Join DailyFX Currency Analyst David Song LIVEto cover the fresh updates to the U. of Michigan Confidence survey.

EUR/USD Daily Chart

EUR/USD Daily Chart
  • EUR/USD appears to have marked a failed attempt to test the March-high (1.2446) as it snaps the recent series of higher highs & lows, with the pair at risk of giving back the rebound from the month-low (1.2155) as the Relative Strength Index (RSI) extends the bearish formation carried over from the previous month.
  • The 1.2230 (50% retracement) region sits on the radar, with the next downside area of interest coming in around 1.2130 (50% retracement) followed by the Fibonacci overlap around 1.1960 (38.2% retracement) to 1.1970 (23.6% expansion).

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--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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