Dollar Remains Strong As Consumer Confidence Crashes Expectations

The dollar remained strong in otherwise quiet Asian trading following a much stronger-than-expected consumer confidence figure for July from the Conference Board the previous day. Consumer confidence crashed expectations by coming in at 90.9 compared to 85.2 the previous month, and the 85.3 expected by analysts. It was the highest reading for consumer confidence since October of 2007; the month when the US stock market peaked ahead of the financial crisis.

The strong consumer confidence probably reflects two things; a strong labor market with plentiful jobs, and a rising stock market, which creates a positive wealth effect particularly for higher net worth individuals. It is no coincidence therefore that consumer confidence was strong during the month that the S&P 500 hit fresh all-time highs and when the US economy has been creating more than 200,000 jobs every month for 5 months now – six if Friday’s nonfarm payrolls release tops 200,000 again.

The euro was pushed to a fresh low of 1.3402, while the dollar was trading above 102 yen at 102.12. A sharp drop in Japanese industrial output for June weighed on the yen, while the euro was hurt by the announcement of fresh, broad-ranging sanctions against Russia by the United States and the European Union. The sanctions could also have a negative impact on the weak economic recovery in the Eurozone.

Looking ahead, there will be plenty to keep investors busy today. Eurozone economic sentiment will be released at 900 GMT, followed by preliminary German inflation numbers for July. During the US session, US GDP growth for the second quarter is expected to come in at a 3% annualized pace from a 2.9% contraction in the first quarter, while the Fed is expected to taper its monthly stimulus by 10 billion again to lower it to 25 billion.

The GBP/USD is in a bearish trend which was strengthened after breaking below the key 1.7000 level on July 24. The pair is approaching the June 18 low at 1.6926. A break below this would provide further downside towards next support at 1.6849 which is defined by the top of the Ichimoku cloud.

The near-term trend is down as prices fall within the channel. The tenkan-sen has crossed below the kijun-sen line, giving a bearish signal. RSI is in bearish territory below 50, adding to the bearish market structure.

However, the rising Ichimoku cloud and rising trend line could halt the selling pressure and help the market bounce back. Resistance is at 1.7000 and 1.7058. The pair has currently found support at the 50% Fibonacci retracement level of the 1.6692 – 1.7190 upleg.