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US Dollar Holds Near Highs as Confidence Climbs in July

US Dollar Holds Near Highs as Confidence Climbs in July

Peter Hanks, Strategist


Talking Points:

  • Consumer confidence rose in July after a disappointing drop in June
  • The survey surpassed expectations and climbed a point versus the previous month
  • A more detailed look at the survey result highlights some caveats in the positive reading

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Consumer confidence surpassed expectations in July, coming in at 127.4, beating June’s figure of 126.4 and this month’s forecast of 126.5. The drop last month was attributed to lower income prospects. Consumer spending is a vitally important aspect of US economic activity so July’s seemingly strong survey performance is a lifeline to US equities that have been troubled after the recent FANG portfolio unraveling.

A more detailed look at the survey results reveals that, although the headline reading was strong, few respondents believe the economy will growth at a faster pace moving forward. Lynn Franco, Director of Economic Indicators at The Conference Board, said “consumers assessment of present-day conditions improved, suggesting that economic growth is still strong. However, while expectations continue to reflect optimism in the short-term economic outlook, back-to-back declines suggest consumers do not foresee growth accelerating.”

Consumers’ optimism about short-term economic outlook also waned in July. The percentage of consumers that anticipate business conditions will improve over the next six months increased +2.4% to 23.1% but those who expect business conditions will worsen also rose +1.5% to 10.8%. The more detailed results show signs that consumers believe the economy may be nearing its peak, as conditions are rosy now and optimism in the long-term wanes.

While the result offers some fleeting optimism for recently troubled US equities, it also offers insight on the US consumer’s perception of the ongoing trade wars. Last month’s drop was a worrying sign that trade wars had a tangible impact on economic outlook and the economy may begin to unravel. This month’s increase shows consumers have not necessarily felt substantial impacts but see potential for the trade wars to constrict or contribute to a slowing economy in the future.

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Although the confidence survey is an important economic data piece, a barrage of important upcoming data dominates investor focus. Tuesday saw a Japanese rate decision, Canadian GDP, and Mexican GDP. The FOMC decides interest rates Wednesday and the Bank of England is due for the same Thursday. Still, US equities and the dollar basket were slightly in the green Tuesday morning, likely due to a few factors like the BoJ decision and Canadian GDP coupled with the confidence data.

SPX 500 Price Chart: 1-minute Timeframe (July 31, 2018 Intraday) (Chart 1)

DXY Index Price Chart: 10-minute Timeframe (July 31, 2018 Intraday) (Chart 2)

Read more: EUR/USD Gains Weigh on DXY Index; Sideways Price Action Eyed

-- Written by Peter Hanks, DailyFX Research

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