US Dollar May Fall if Consumer Data Fuels Fed Easing Bets

US Dollar, Consumer Confidence, Fed Outlook – Talking Points

• US Dollar may fall if consumer confidence shows weakness
• Soft reading could undo USD gains after robust retail sales
• EUR/USD outlook bearish as pair flirts with key resistance

APAC Recap: China GDP

Asia-Pacific markets remain relatively indifferent following the publication of Chinese GDP data and better-than-expected industrial statistics. The lack of significant volatility in China-growth proxies like the Australian Dollar suggests market focus is elsewhere. This may also be due to investors waiting to position their trades ahead of next week’s cascade of high-level event risks including the annual forum in Davos, Switzerland.

US Dollar Analysis Ahead of Consumer Data

The US Dollar may retrace its recent gains against its major G10 counterparts if key consumer data underwhelms and sends a chill up the spine of policymakers. The consumer has remained the primary force keeping the world’s largest economy afloat as manufacturing output continues to show soft figures. The data may therefore elicit a strong reaction from USD since it has the capacity to inflame Fed easing expectations.

US Dollar Gains After Strong Retail Sales But May Decline on Consumer Confidence

EUR/USD chart created using TradingView

The University of Michigan sentiment indicator shows a preliminary estimate for January at 99.3, unchanged from the prior print. The expectations statistic is anticipated to increase from the previous 88.9 reading to 89. However, after peaking in October 2018, consumer confidence has been on a modest downtrend and experienced a multi-month low amid a spike in recession fears and cloudy growth forecasts.

Fed Outlook

Several Fed officials have noted how critical a buoyant consumer is to maintain economic activity in the face of geopolitical headwinds from at home and abroad amid a manufacturing slowdown. Therefore, cracks in consumer-related statistics may push the US Dollar lower if the result is an inflammation of Fed easing bets. There is also another indicator which may also give insight on the consumer’s confidence: housing data.

EUR/USD Technical Analysis: Follow-up

The EUR/USD uptrend is still in play, though capitulation from being unable to mount the rising support channel may be followed by a decline until selling pressure is overwhelmed by buyers at 1.1121. As mentioned in my prior piece, the pair appears to be trying to re-saddle the December uptrend, though recent price action suggests the conviction to continue higher is fading.

EUR/USD – Daily Chart

EUR/USD chart created using TradingView

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--- Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com

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