Article rewritten and expanded based on original by James Hyerczyk, FXEmpire.
Title: U.S. Dollar Recovers After Strong Michigan Sentiment Data; Key Technical Levels in EUR/USD, GBP/USD, USD/CAD, USD/JPY
Author: Adapted from article by James Hyerczyk, FXEmpire
Date: April 12, 2024
Overview
The U.S. Dollar found strength on Friday, April 12, recovering from earlier session losses as robust economic data signaled growing consumer optimism. The University of Michigan’s preliminary Consumer Sentiment report for April came in significantly stronger than expected, bolstering the case for the Federal Reserve to maintain its current interest rate stance for an extended period.
The rebound in the U.S. Dollar came after market participants initially sold the greenback following a pullback in bond yields and minor profit-taking in anticipation of upcoming inflation data. However, better-than-expected sentiment figures helped shift momentum back in favor of the greenback.
This report dives into how the U.S. Dollar performed against its major rivals, analyzing factors behind the recent price action and offering a technical outlook for EUR/USD, GBP/USD, USD/CAD, and USD/JPY.
U.S. Economic Data Summary
The Michigan Consumer Sentiment Index, typically considered a strong indicator of future consumer spending, surprised analysts with an April reading of 77.9, well above the expected 79.0 and higher than March’s final reading of 79.4. While inflation expectations remain steady on a one-year time horizon, five-year expectations edged up, a subtle sign that Americans expect inflation to persist somewhat longer.
Highlights of the data:
– Michigan Consumer Sentiment Index (Prelim – April): 77.9
– Forecast: 79.0
– Previous: 79.4
– One-year inflation expectations remained flat at 3.0%
– Five-year inflation expectations increased slightly from 2.8% to 3.0%
Despite the modest miss in the sentiment headline number, the U.S. Dollar gained support due to the upward move in inflation expectations for the longer term. The resilience in consumer confidence was sufficient to reinforce the narrative that the Federal Reserve might delay monetary policy easing.
Market Reaction Snapshot
The DXY Dollar Index initially dipped lower, testing intraday support amid lower Treasury yields and a brief risk-on move. However, following the release of sentiment and inflation data, the Dollar regained lost traction, climbing off session lows and turning positive across multiple pairs.
Key Developments Supporting Dollar Rebound:
– Upward revision to long-term inflation expectations contributed to speculation that the Fed may maintain higher rates for longer.
– Treasury yields stabilized, helping support the greenback after a morning drop.
– Equities showed mixed performance, contributing to cautious trade in currencies.
Technical and Fundamental Overview of Major Dollar Pairs
EUR/USD: Pressured by U.S. Dollar Rebound
The euro lost early gains against the U.S. Dollar as sentiment shifted in favor of the greenback. The pair attempted to push higher during the European session but failed to hold above key resistance levels.
Factors Impacting EUR/USD:
– European industrial production data came in weaker than expected, placing additional weight on the shared currency.
– ECB officials continued signaling dovish forward guidance, emphasizing incoming rate cuts in summer.
– Contrast in economic performance between the U.S. and Eurozone grew more pronounced.
Technical Analysis:
– Current price: Approximately 1.0645 (as of Friday close)
– Resistance levels:
– 1.0700: A psychological threshold and minor resistance
– 1.0790 – 1.0800: Previous swing highs near the 50-day moving average
– Support levels:
– 1.0600: Near-term support and March low
– 1.0500: A critical level where long-term support is found
Outlook: With fundamental pressure increasing and technicals
Explore this further here: USD/JPY trading.