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

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Miguel A. Rodriguez
Miguel A. Rodriguez
05 November 2022
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.

This information/research prepared by Miguel A. Rodriguez does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views and consequently any person acting on it does so entirely at their own risk.The research provided does not constitute the views of KW Investments Ltd nor is it an invitation to invest with KW Investments Ltd. The research analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report.The research analyst in not employed by KW Investments Ltd. You are encouraged to seek advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit that conforms to your specific investment objectives, financial situation, or particular financial needs before making a commitment to invest. The laws of the Republic of Seychelles shall govern any claim relating to or arising from the contents of the information/ research provided. 

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Miguel A. Rodriguez
Miguel A. Rodriguez
Financial Writer

Miguel worked for major financial institutions such as Banco Santander, and Banco Central-Hispano. He is a published author of currency trading books.