THE TAKEAWAY: [U. of Michigan Confidence Survey Index Declines to 72.5] > [Household Sentiment Falls] > [USDollar neutral]

Confidence among U.S. consumers fell in February, falling further than anticipated, with preliminary readings of the University of Michigan Confidence Survey Index (MCSI) coming in at 72.5. The median forecast according to a Bloomberg News survey showed an anticipated figure of 74.8. The latest figure breaks a 5-month uptrend in household confidence, which reached an 8-month high of 75.0 in January.

The lower MSCI figure reflects weaker consumers’ optimism about the economic recovery and expectations on business conditions, employment and income in the U.S. in the intermediate future.

EUR/USD 1-minute Chart: February 10, 2012

Chart created using Strategy Trader– Prepared by Tzu-Wen Chen

In the minutes following the data release, the greenback strengthened against most of the other major currencies despite this latest reading showing a drop in U.S. consumer confidence. The U.S. dollar jumped 18 pips against the euro before the market corrected back towards levels seen before the data release.

If household sentiment trends higher by the end of the month, we could see the U.S. dollar strengthening further, as the gaining pace of the U.S. economic recovery could limit the prospects for the Federal Reserve’s scope to conduct another round of quantitative easing. However, the ongoing ‘sluggishness’ of the housing market and slowdown in wage growth may weigh on confidence, and the Federal Reserve may show an increased willingness for further easing in an effort to encourage a sustainable recovery.

AUD/USD 1-minute Chart: February 10, 2012

Chart created using Strategy Trader– Prepared by Tzu-Wen Chen

Looking to the AUD/USD pair, a similar reaction was seen, as the U.S. dollar gained 15 pips against the Australian dollar before settling back to the previous levels.

--- Written by Tzu-Wen Chen DailyFX Research

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