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Consumer Credit in the U.S. Falls Unexpectedly, Adding Volatility

Consumer Credit in the U.S. Falls Unexpectedly, Adding Volatility

2011-10-07 20:35:00
James Hao,
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THE TAKEAWAY: US Consumer Credit Surprisingly Drops > Consumer Cuts Borrowing > EUR/USD Oscillating

The Federal Reserve said today that consumer credit in the U.S. dropped as much as $9.5 billion in August. The unexpected decline is the most in over a year, way off the median forecast of 33 economists surveyed by Bloomberg News calling an $8 billion increase. Within the gauge, the non-revolving credit including student and auto loans is the main drive for the decrease, which slumped by the most in three years. And the revolving credit including credit card loans continued the fall from last month. The two segments printed at $7.3 billion and $ 2.3 billion decrease respectively.

US Consumer Credit:Aug 2010 to Present

New_document_3_body_Chart_3.png, Consumer Credit in the U.S. Falls Unexpectedly, Adding Volatility

Prepared by James Hao

The Fed’s report of consumer credit does not include home mortgages, but the data is an crucial implication for consumer spending. Amid 9.1% unemployment rate and moderate gains in workers’ earnings, consumers are increasingly cautious on non-essential items and cutting back on those spending sharply. In addition, the Americans picked up the pace of auto purchases in August and September, according to Bloomberg data, and a faster pace of car buying also accounts for the decrease in non-revolving credit.

EUR/USD 1-minute Chart: October 7, 2011

New_document_3_body_Picture_4.png, Consumer Credit in the U.S. Falls Unexpectedly, Adding Volatility

Charts created using Strategy Trader– Prepared by James Hao

Following the release, the EUR/USD pair is relatively unmoved, oscillating in a 10-pip range, as investors are closely watching the more significant market movers today – payrolls and downgrades. News from Europe and U.S. painted a mixed picture, as American employers added more workers in September than forecast and Fitch Ratings downgraded the sovereign debt of Italy and Spain. The concern that U.S. economy is sliding into another recession was eased, while the surprising Spanish downgrade put European jitters onto the center stage again. The EUR later reached $1.3420 with an RSI exceeding 70 which indicate an overbought signal, and the single currency soon lost ground and retreated to the level of about $1.3390. Should the sentiments deteriorate amid worsening sovereign debt, investors might continue to bear down on the EUR/USD outlook in the coming week.

--- Written by James Hao, DailyFX Research Team for DailyFX.com

To contact James Hao, e-mail instructor@dailyfx.com

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

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