Forex: US Dollar Vaults on 1-Year Low in Consumer Sentiment, Debt Ceiling Extension

With little to no economic data on the session, the US dollar found strength from two key fundamental drivers on the day, helping the greenback to power through key resistance against the British pound and Canadian dollar. The sentiment is likely to continue as we head into early afternoon trading and ahead of the long US holiday weekend.

Consumer Sentiment Remains Low

According to the most recent Thomson Reuters/University of Michigan preliminary index of consumer sentiment, US consumers remained widely cautious of the US economy’s near term future. Incidentally, sentiment seems to be exacerbated by recent increases in payroll taxes – a result of recent Fiscal Cliff resolutions.

Headline readings for the January report dipped to 71.3, against estimates of a rise to 75.1. The figure was a declining continuation from December’s 72.9 and the second monthly plunge since the survey hit 84.9 back in November – a 2012 high.

Subindex readings weren’t that much better as futures expectations continued to lose ground, dipping to the lowest in over a year. Meanwhile, current conditions remain comparatively stable, losing a few points to print at 84.8.

Overall the report remains bullish for the US Dollar as it reinforces the argument for continued Fed monetary assistance throughout the next 11 months – bucking previous contention that the world’s largest economy was well on its way to recovery.

Congressional Stalemate Forcing a Deal?

With Treasury officials noting the near term breach of the looming debt ceiling, speculation has surfaced of a potential short term deal that would allow for extensions in the debt limit for another two months. With the government en route to exceed the $16.4 trillion levels in mid-February, and both political sides still reeling from the Fiscal Cliff debate, political leaders are floating the idea of delaying the ultimate decision till April. The month coincides with a vote on the Senate’s budget hearing.

Although not as bullish as one would hope for, the news tidbit does alleviate some impending pressure from US dollar bears as the measure will allow both sides more time in forming a resolution.

USD Index Runs Into Resistance

Now bouncing off of support via the 79.56 figure, the US Dollar Index has advanced on major resistance at 80.14. The figure is being reinforced by the 38.2% fib resistance figure and a confluence of both the 100 and 200 EMAs. Failure to rise above would force a test of 79.49 support.

Source:  FXTrek Intellicharts