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USD Rallies as May Consumer Confidence Hits Highest Level since October 2007

USD Rallies as May Consumer Confidence Hits Highest Level since October 2007

Trang Nguyen,

THE TAKEAWAY: May U. of Michigan Confidence Final Index Surges to 79.3 > Americans Might Extend their Spending due to Higher Financial Confidence > USD/CAD Extend Loss

Confidence among U.S. consumers for May hit the highest level since October 2007, reflecting their persistent optimism about the prospective strength of the economy as inflation has eased and job and wage prospects have become more favorable.

The Thomson Reuters/ University of Michigan final index mounted to 79.3 in May, ahead of 76.4 in April and well above last May’s 74.3. The increase maintained the index’s streak of consecutive gains, now at ten months. The print also topped consensus estimate as economists surveyed by Bloomberg News widely anticipated the gauge to hold at the preliminary May reading of 77.8.

The increase in confidence over the past six months has been substantial, with the Sentiment Index climbing well above the recession average of 69.3 but still below the average of 88.1 for non-recessionary periods. Consumers were still hopeful about a renewed job growth in a near term despite the jobs slowdown recently reported by the Labor Department. Economic Conditions Index significantly rose to 87.2 in May from 82.9 in April. Economic Outlook Index advanced to 74.3 from preliminary reading’s 71.7 and from April’s 72.3. “The most likely prospect is that job growth resumes at modest pace and confidence largely unchanged until after the November election and decisions about tax policy are made”, said Richard Curtin, Surveys of Consumers chief economist.

The final report revealed that inflation expectations for one year ahead continued to moderate to 3.0 percent this monthfrom May’s preliminary reading of 3.1 percent and April’s 3.2 percent as a result of gasoline price pullback. Meanwhile, expectations for five year edged down to 2.7 percent from 3.0 percent in the preliminary report.

USDCAD1-minute Chart: May 25, 2012

052512_U.of_Michigan_Confidence_May_final_body_Picture_1.png, USD Rallies as May Consumer Confidence Hits Highest Level since October 2007

Chart created using Strategy Trader – Prepared by Trang Nguyen

The U.S. dollar immediately edged higher versus most of its major trading partners in the minutes following the stronger-than-expected consumer confidence report. As seen from 1-minute USDCAD chart above, the greenback hiked 20 pips against the loonie from 1.0265 to 1.0285 within thirty minutes. At the time this report was written, the USDCAD trades at $1.02849.

--- Written by Trang Nguyen, DailyFX Research Team for DailyFX.com

To contact Trang, email tnguyen@dailyfx.com

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

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