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US Dollar Paces Big Drop for July as Consumer Confidence Wanes

US Dollar Paces Big Drop for July as Consumer Confidence Wanes

Rich Dvorak, Analyst

US DOLLAR OUTLOOK: DXY INDEX PRICE PACING NEAR 4% PLUNGE THIS MONTH AS CONSUMER CONFIDENCE DETERIORATES DUE TO LINGERING CORONAVIRUS CONCERNS

  • US Dollar has been on a steep slide this month as EUR/USD price action spirals lower
  • The DXY Index is on pace for a 3.7% decline month-to-date as US growth prospects fade
  • July consumer confidence data dropped 5.7 points driven by weakening future outlook

USD price action has weakened considerably throughout July. The popular DXY Index – a basket of major currency pairs like the Euro, Pound, and Yen – is currently pacing a 3.7% drop month-to-date. US Dollar weakness over the last several trading sessions has sent the broader DXY Index swooning to two year lows as EUR/USD surges.

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DXY INDEX – US DOLLAR PRICE CHART: 1-HOUR TIME FRAME (30 JUN TO 28 JUL 2020)

DXY Index Price Chart US Dollar Outlook

Chart created by @RichDvorakFX with TradingView

Aside from the material improvement in market sentiment around the world since peak coronavirus panic earlier this year, which has placed downward pressure on top safe-haven currencies like the US Dollar, perhaps diverging economic growth prospects between the United States and Eurozone serves as another bearish driver weighing negatively on the DXY Index. Not only was this just highlighted by the latest Markit PMI reports, the cohesive Euro stimulus package agreed to by Eurozone officials last week gives hope to the single-currency area, and could arguably lower EUR risk premia.

EUR/USD Bullish
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Change in Longs Shorts OI
Daily -2% -2% -2%
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One possible explanation for the recent divergence in GDP growth rate trajectories could include the coronavirus response. The US has struggled to keep the COVID-19 pandemic under control with notable flareups across major states causing weekly jobless claims to rise and forcing several businesses to keep their doors shuttered.

US CONSUMER CONFIDENCE INDEX: FUTURE EXPECTATIONS DETERIORATING AS COVID-19 PANDEMIC PERSISTS & WEIGHS ON JOB PROSPECTS

Conference Board Consumer Confidence Index Chart Historical Data US Dollar Outlook

This concept is also suggested by consumer confidence data that just crossed the wires from the Conference Board. The preliminary headline Consumer Confidence Index dropped to 92.6 for July, which compares to 98.3 recorded the prior period. Deteriorating consumer confidence was fueled primarily by a notable decline in the future expectations component to 91.5 from 106.1 last month.

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According to the Conference Board’s report, large month-over-month declines in consumer confidence were “no doubt” a result of the resurgence of COVID-19. Further, the monthly survey stated that consumers were less optimistic regarding their short-term outlook for both business conditions and the labor market. Seeing that the US economy is largely consumer-driven, and consumer confidence is deteriorating, this could underscore headwinds facing US GDP growth potential and the broader US Dollar.

Keep Reading – S&P 500 Outlook: VIX in Focus Amid Earnings, Stimulus Talks

-- Written by Rich Dvorak, Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight

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

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