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US Dollar (DXY) Muted as US Consumer Confidence Drops

US Dollar (DXY) Muted as US Consumer Confidence Drops

Justin McQueen, Strategist

US Dollar Analysis & News

  • US Consumer Confidence Drops to Lowest Level Since February 2021
  • USD Muted With Focus on More Important Data Releases This Week

The latest US Conference Board consumer confidence fell to the lowest level since February, the headline reading dropping to 113.8, below expectations for 124. Concerns over the Delta variant continued to weigh on short term growth prospects. While spending intentions for homes, autos and major appliances had cooled somewhat, the Conference Board note that it is too soon to conclude whether the drop in consumer confidence will result in consumers significantly curtailing their spending in the upcoming months.

However, the weaker reading should not be entirely surprising given recent consumer sentiment figures, most notably the U. of Michigan sentiment data shown in the chart above, falling to a decade low. In turn, the reaction in the USD had been muted with traders likely to focus on more important data releases, including ISM and NFP, in which the latter will be key for shaping expectations over when a Fed taper announcement is coming.

A Classic Case of Trading NFP

With a lot of attention on the NFP figure once again, I thought I’d take a look at last month’s release, which had been a textbook case of how NFP is traded. Heading into the release the ADP report had significantly missed expectations (330k vs 695k exp.), which in turn, lowered the bar for the NFP report to surprise on the upside. Couple this with surprisingly hawkish comments from Vice Chair Clarida, this had heightened the market sensitivity to the NFP report.

That being said, when laying out the scenario’s, my view had been that should we see a strong headline and details, the USD would be expected to perform well vs CHF and NZD. Upon the release of the NFP report, which had been a very strong reading, NZD/USD immediately blipped lower, before retracing back to pre-announced levels, until where the dust settled and NZD/USD began to drift lower. As such, it is worth highlighting that the immediate blip lower is likely caused by algos/HFTs, therefore, jumping on this move would likely result in a poor entry. In turn, as a retail trader with higher latency, it is best to wait for the dust to settle.

NZD/USD Trading During NFP

Source: Refinitiv

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