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US Dollar Probes Session Highs in Wake of Consumer Confidence Data

US Dollar Probes Session Highs in Wake of Consumer Confidence Data

Rich Dvorak, Analyst

US DOLLAR OUTLOOK: USD PRICE ACTION STRENGTHENS AS CONSUMER CONFIDENCE MISS UNDERSCORES RISK AVERSION

  • US Dollar gaining ground during early Tuesday trade as markets grapple with a risk-off tone
  • USD price action extending higher in the wake of disappointing consumer confidence data
  • COVID-19 resurgence coupled with fears of a new variant weighing negatively on sentiment
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The US Dollar is trading on its front foot Tuesday morning. USD price action looks perky across the board of major currency pairs with Greenback strength notable against the Pound, Euro, and Australian Dollar. The bid beneath safe-havens like the US Dollar appears driven by a broad deterioration in risk appetite as coronavirus concerns roil market sentiment.

Lockdowns have been mounting and fears surrounding a new variant of COVID-19 are swelling. This theme was echoed by preliminary consumer confidence data for December just released, which crossed the wires at 88.6 as detailed on the DailyFX Economic Calendar. The disappointing consumer confidence report declined from a prior reading of 96.1 and missed market forecast of 97.0.

DXY - US DOLLAR INDEX PRICE CHART: 1-HOUR TIME FRAME (17 DEC TO 22 DEC 2020)

DXY Index Price Chart US Dollar Technical Outlook

Chart by @RichDvorakFX created using TradingView

The current conditions and future expectations sub-components both turned lower from the previous reading as well. According to details of the consumer confidence report, it seems that “growth has weakened further in Q4, and consumers do not foresee the economy gaining any significant momentum in early 2021.” The percentage of consumers claiming business conditions are “good” decreased to 16.0% from 18.8%, and the percentage of consumers claiming business conditions are “bad” increased from 34.9% to 39.5%. This comes despite efforts to roll out coronavirus vaccines showing over a 90% efficacy in stopping the spread of COVID-19. That said, there was a slight uptick in the percentage of traders expecting business conditions to improve over the next six months, rising from 26.5% to 29.0%, which could come on the heels of vaccine news and anticipation of another fiscal aid package.

No-deal Brexit risk is likely exacerbating broad US Dollar strength seeing that GBP/USD comprises 11.9% of the DXY Index. An hourly chart of the US Dollar Index reveals that downward momentum has dissipated as a short-term bullish trend starts to form from a series of higher lows. US Dollar traders might look to yesterday’s intraday high as a potential area of technical resistance before the 92.00-handle comes into focus. Nevertheless, resilient risk appetite could correspond with a resumption of US Dollar weakness and steer the DXY Index toward the 89.80-price level. Breaching this level might open up the door to another leg lower.

-- 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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