Dollar Down, But Not Out, On 16-Year Low US Consumer Sentiment

Record-breaking downbeat consumer confidence and housing data released today have depressed the US dollar in the currency markets, although the USD remains within recent range against the Euro, Swiss franc, British pound and the Japanese yen. US consumer confidence fell to 50.4 this month, worse than the forecast reading of 56.4, from a revised 58.1 in May (originally reported at 57.2). June’s reading was the lowest since 47.3 in February 1992, which means that US consumers haven’t been feeling this pessimistic in 16 years. Clearly, the slump in the housing market, coupled with record oil prices and weak jobs market are taking a huge toll on the average American. Before the credit crisis unfolded last summer, consumer confidence stood at 111.90 in July, and now the index has fallen by more than 50%. Only a record low of 12.3% of those surveyed are expecting their income to rise in the next few months.

The US dollar is also shaken by the biggest year-over-year drop of house prices in the US. According to the latest S&P/Case-Shiller housing data, home prices fell 15.3% in April , the biggest drop ever. The “good” thing? It came out better than the 16% expected. The only “bright-spot” of the data is that the 3-month annualized rate of decline, now at 22.08%, is slowing. Although it is still a big decline, it is the slowest 3-month pace of decline since December. The US housing sector is likely to experience further price declines as foreclosures, a result of mortgage defaults, add to the burgeoning supply of homes on the market. Watch out for US new home sales from the Commerce Department on Wednesday.

Greenspan Says

Former Fed chief Greenspan said today that financial instability may continue into 2009 and that “data suggests we are on the brink” of recession. He thinks that Fed action in March had reduced the odds of recession, but an economic recovery in the US “isn’t in the immediate outlook.” He expects very sluggish growth for the next 12 months, and thinks that oil will remain volatile.

Forex Trading

The US dollar has slipped modestly today, but still traders will be reluctant to short the dollar further before the Fed’s rate announcement Wednesday at 1815 GMT. EUR/USD is hovering around 1.5600, and today’s trading range is within yesterday’s. Its nearest support is around 1.5450, and resistance is 1.5650. USD/CHF hit a high of 1.0470, and resistance is around 1.0490-1.0500, then 1.0520.

Economic Calendar for Wednesday:

UK Nationwide house prices

German CPI

Italian retail sales 0800 GMT

US durable goods 1230 GMT

US new home sales 1400 GMT

US FOMC rate decision 1815 GMT (rate expected to stay at 2%)

NZ current account balance 2245 GMT

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