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