**U.S. Dollar Retreats as Michigan Consumer Sentiment Misses Estimates: Comprehensive Forex Analysis (EUR/USD, GBP/USD, USD/CAD, USD/JPY)**
*By James Hyerczyk – Credit: Original analysis by James Hyerczyk, FXEmpire*
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**Overview**
The U.S. dollar fell against major currencies after the University of Michigan’s consumer sentiment index came in weaker than expected, amplifying speculation that the Federal Reserve may pause or even reverse its path of tightening monetary policy. This significant economic indicator, combined with moderating inflation expectations, has influenced global currency markets, sending ripples through popular pairs such as EUR/USD, GBP/USD, USD/CAD, and USD/JPY. This article will provide an in-depth, 1000-word analysis of recent developments, key drivers behind currency movements, and what forex traders might expect in coming sessions.
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**Key Economic Events and Dollar Reaction**
– The University of Michigan’s consumer sentiment index for June fell to 65.6 from a previous reading of 69.1, missing economists’ forecast of 72. This drop suggests growing concern among U.S. consumers about future economic conditions.
– Inflation expectations, as measured by the survey, indicated a decline, with the one-year outlook slipping from 3.3 percent to 3.1 percent. The five-year inflation outlook also eased to 3 percent from 3.1 percent.
– This data comes just days after the Federal Reserve opted to keep rates on hold, while signaling only one rate cut for 2024. Prior to this, markets had been pricing in as many as two or more rate cuts by the end of the year.
– The dollar index (DXY) retreated from recent highs, dropping below the 105.50 mark during Friday’s U.S. trading session.
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**Fundamental Analysis and Market Sentiment**
Currency markets have been highly reactive to U.S. data releases due to shifting expectations surrounding the Fed’s monetary policy. The University of Michigan survey is one of the earliest and most influential gauges of U.S. consumer sentiment and inflation expectations, closely watched by traders and policymakers alike.
– A lower than expected consumer sentiment reading often suggests potential softness in future consumer spending, which is a major component of overall economic activity.
– Softer inflation expectations further lessen pressure on the Fed to hike rates in the near-term, increasing the likelihood of maintaining or even easing policy rates.
– Risk appetite improved slightly on the data, as investors interpreted these figures as reducing the risk of aggressive Fed tightening, leading to broad-based dollar weakness.
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**Technical Analysis: Major Currency Pairs Affected**
### EUR/USD
– **Rally on Dollar Weakness**: Following the disappointing Michigan sentiment report, EUR/USD bounced from under the 1.0700 support level, climbing past 1.0750 by the close of the U.S. session.
– **Key Resistance and Support**:
– Immediate resistance is sighted at 1.0800, which coincides with the 50-day moving average.
– Downside support lies at 1.0700, marked by recent swing lows.
– **Momentum Shift**: The pair broke above short-term moving averages and technical oscillators such as RSI turned higher, suggesting potential for follow-through buying if the dollar continues to underperform.
### GBP/USD
– **Lifted by Broad-Based Dollar Selling**: Sterling advanced sharply after the U.S. data, with GBP/USD reclaiming the 1.2700 level.
– **Key Levels**:
– Resistance is located near 1.2750, where sellers previously emerged.
– Support stands at 1.2630.
– **Domestic Backdrop**: While the Bank of England remains cautious, the upcoming UK CPI release and next week’s BoE meeting could introduce further volatility, but for now, the pair benefits from a softer dollar environment.
### USD/CAD
– **Canadian
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