Consumer sentiment in the U.S. falls to lowest since 2011- Market Overview

Consumer sentiment in the U.S. falls to lowest since 2011- Market Overview

The closely watched economic index released by the University of Michigan on Friday led to a strong response in the financial markets.

The University of Michigan releases economic data with a long tradition in the market, which is often followed by investors and traders, especially in the Forex market. These reports are published twice in the month: a preliminary one, as was the case last Friday, and a final one in the previous week of the same month.

The preliminary data from last Friday surprised markets, as its result was very far from the forecast, and this disproportionate volatility is not usual. However, the number pointed at the third-largest monthly drop in history, with August’s Consumer Sentiment data plummeting from 81.2 in the previous month to 70.2. Additionally, the Consumer Expectations index plunged from 79.0 to 65.2. Here the market forecast was even higher, with an average of 85. And as if that weren't enough, regardless of the slight drag on the latest inflation figure, the 5-year inflation expectations index stood at 3% from 2.8% previously.

Whether these huge setbacks are confirmed once the final data for August is published remains to be seen. For now, the impact on the market has been significant, especially on currencies and treasury bonds.

The yield on the 10-year Treasury note fell eight basis points to 1.28%, putting tremendous pressure on the U.S Dollar. However, when this figure was published (on a Friday in mid-August), the market share is below minimums, and therefore liquidity is below the average, favoring higher volatility levels.

EUR/USD skyrocketed, gaining more than half a figure from the publication of the figure to the close of the market. Technically, the pair has detached from the 100-hour SMA line where it was trading in the precious moments, although it is still in a downtrend, far from the main resistance level located around 1.1850.

Dollar sales were widespread, and thus the USD/JPY pair plummeted, returning to the 100-day SMA line on the daily chart. There is a medium support level between the 109.40-50 zone (price concentration zone), potentially slowing down this latest downward momentum.

It will be necessary to monitor the Dollar’s evolution in the following days to evaluate if this could be a disproportionate reaction to a figure that can be revised later or if the expansion of the Delta variant can have a bigger-than-expected impact on the North American consumers.

Sources: Bloomberg, reuters.com.

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