After presenting a volatile first hour, the U.S indices plunged by over -1.5% as economic data showed that consumers are still doubtful about the economic situation. Even though the housing market showed relative strength with the S&P/Case-Shiller index climbing by 0.3%, Consumer confidence dropped to a 10 month low of 46 points.
According to the data, investors are now more pessimistic about the economy than they were at the depths of the 2007-2009recession. The percentage of consumers anticipating an improvement in business conditions over the next six months decreased to 16.7% from 20.7%, while those anticipating conditions will worse increased from 15.3% from 12.7%.One must note that the Consumer Confidence Survey is based on a representative sample of 5000 U.S households.
Unlike Monday’s session, when financials pulled the market higher, the financial sector was the worst performing sector of the intraday session, shredding 1.8%. From a technical point of view, the S&P500 retraced after hitting its 50 day moving average. Yesterday’s session wiped out 4 previous bullish sessions, as investors preferred to cash in on recent gains. One must note; technical support lies ahead, at 1085 points.
Forex
The Dollar index managed to gain ground yesterday after the U.S equity market experienced a sell-off. The Index climbed higher and finished the session around 80.9 points. From a technical point of view the index is still pointing towards minor divergence, a signal which often leads to a minor correction. Even though the Dollar might not experience a major sell-off leading the index down to one of its Fibonacci retracement areas, the index could stumble around current levels.
On individual pairs the EUR/USD and the GBP/USD both dropped to lower levels, pulled lower by a rising Dollar and worse than expected fundamental data. The German IFO report fell from 95.8 to 95.2 in the month of February, pulled down by services. Germany’s demand hasn’t been at its fullest, something that can be blamed on sentiment. In addition, a recent cut-back by the government, reducing its incentives for car purchases, had a negative effect on demand.
Over in the U.K the Pound felt some pressure after BOE governor Mervyn King released his comments. King stated that the economic recovery is still fragile, as the economy is still dealing with the aftershocks of one its worst recessions. Furthermore he stated that the recent decline in consumption from Europe is having a major effect on British exports. Europe is one of the U.K’s largest consumers. Governor King hinted that quantitative easing could be used to prevent any further economic damage.
From a technical point of view the GBP/USD is now trading on a fine-line, above double support. Even though indicators are pointing towards a minor bounce, a break of the current level could lead this pair to much lower ground.
The Day Ahead
The day ahead should be an interesting one, as Germany is scheduled to release its GDP figure and the U.S will follow with its New Home Sales. Germany is expected to show that the economy contracted by -1.7%. New Home sales are expected to jump and come out at 355k, compared to a previous 342k.
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