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Saturday, 31 August 2013

Guest Article: US Consumer Sentiment Investigates EUR/USD Fall

US Consumer Sentiment Instigates EUR/USD Fall
Friday’s trading saw the dollar strengthen against the euro, following revised consumer sentiment data as the United States continues its economic improvements.
During US trading, the Eurodollar was at 1.3198, down by 0.32 percent. This follows a low for that session of 1.3174. The high was 1.3255. Technical analysis shows the level of support was likely to be around 1.3166, held from the lowest point of the 25th July. Resistance would be found at 1.3398, the high of just two days earlier.
Revised Sentiment Index
82.0 was the headline figure for the August US consumer sentiment index, issued by Thomson Reuters and the University of Michigan. The release for July had been for a figure of 80.0, and the revision had been expected to add just 0.5. The 2.0 increase came as somewhat of a surprise, and certainly had an impact on the Eurodollar’s slide.
Expectations were also high for the Chicago purchasing managers’ index, which had been 52.3 in July. The final figure came in at a strong but expected 53.0.
The Bureau of Economic Analysis also released data on Friday that showed a small increase in consumer spending. July saw a 0.6 percent rise, and 0.3 percent was expected for August, but the figure was only 0.1%. This is one of the more volatile indicators however, and can be heavily influenced by the automotive industry.
As with all recent strong data, the PMIs and CSIs fuelled belief that the Federal Reserve is likely to begin reigning in its $85 billion per month bond buying scheme. Bernanke and co have previously suggested that tapering would not begin until there is further evidence that the recovery is well on track.
The current programme of stimulus has the effect of weakening the dollar, especially against the euro. EUR/USD is likely to be bearish as the prospect of ending the practice increases.
September now looks like the likely month for moderation to begin.
Euro Data
Official Eurozone data was also reasonable, despite the single currency struggling against the dollar.
The consumer price index increased by 1.3 percent in August. Slightly down on July’s figure of 1.6 percent, and predictions of 1.4 percent, but a reasonable level of inflation nonetheless.
The unemployment rate was unchanged as expected, coming in at 12.1 percent. This is one of the major benchmarks for any policy changes, and until it begins to alter, the euro is likely to be quiet.
Major differences between European economies are also contributing to the dollar’s gain. While countries such as the UK and Germany are regularly posting strong performance indicators, the south of the continent is still struggling. The ECB is looking to curb this disparity by maintaining similar banking rules across the Eurozone, but this may no longer be possible.
The continent may have emerged from recession as a whole, but there are still major issues, which will ensure that the dollar continues to strengthen against it. The potential conflict in Syria is also encouraging investors to shift over to the dollar, which is still considered a safe haven.
With tapering on the horizon, and Eurozone data steady, the EUR/USD outlook is bearish. 

Richard Boothroyd


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