28.02.202413:03 Forex Analysis & Reviews: Consumers concerned about labor market situation

The euro and the pound sterling rose quickly against the US dollar after news that US consumer confidence fell in February this year for the first time in four months. This happened amid the deteriorating views of Americans on the outlook for the economy, labor market, and financial conditions. However, buyers failed to keep the initiative and failed to reach new weekly highs. However, we will focus on the technical picture later.

According to the data, the Conference Board consumer confidence index fell to 106.7 points from a downwardly revised 110.9 points a month earlier. The February data was well below all economists' estimates. The expectations index fell to a three-month low, while the current conditions index also tumbled.

This month's decline in sentiment interrupts a recent surge of optimism related to a stronger and more resilient US economy, as well as views on inflation and labor market performance. Despite this, the average inflation rate expected by consumers over the next 12 months continued to decline and remains the lowest since 2020. The Conference Board reported that while overall inflation remained the top concern for consumers, they were slightly less concerned about food and gasoline prices, which had declined in recent months. Consumers "expressed more concern about jobs and the ongoing presidential campaign."

The share of respondents expecting business conditions to improve over the next six months fell to an eight-month low. The share expecting income growth also dropped to its lowest level since October. Consumers were also more pessimistic about their current and future financial situation.

As I noted above, views on the labor market were more pessimistic than a month earlier. The share of consumers who said that jobs were plentiful declined, while a growing number of respondents said that jobs had become much harder to find. The difference between those who said jobs were plentiful and those who said they were hard to find narrowed for the first time in three months.

Given the deterioration in labor market expectations, which are especially important under the current conditions, the drop in confidence could affect consumer spending, pulling down not only inflation but the entire economy. At the same time, consumers' plans for major purchases improved this month. The share of consumers planning to buy large household appliances advanced to a five-month high, with many planning to buy used cars as well.

Let us also pay attention to yesterday's report on US house price growth. As the data showed, the growth in house prices in the US accelerated in December, indicating the end of the period of rising mortgage rates. Prices rose by 5.5% from a year earlier, according to the S&P CoreLogic Case-Shiller. In December, house prices in 20 cities jumped by 6.1% from a year earlier, following a 5.4% increase in the previous month. The largest year-on-year increase of 8.8% was recorded in San Diego, followed by Los Angeles and Detroit with a rise of 8.3%.

As for the current EUR/USD technical picture, the euro is still in demand. Now buyers need to think about taking control over the 1.0860 level. Only this will allow them to test 1.0890. From there, it is possible to climb to 1.0930, but doing so without support from major traders will be quite challenging. The farthest target is seen at a high of 1.0965. If the trading instrument declines only around 1.0820, I expect serious action from big buyers. Otherwise, it would be wise to wait for an update of the low of 1.0790 or open long positions from 1.0760.

As for the current technical picture of GBP/USD, bulls need to take the nearest resistance at 1.2680 to develop the uptrend. This will allow them to target 1.2710. However, it will be quite difficult to break above this level. The furthest target will be 1.2740, after which we can talk about a sharper upward movement to 1.2780. If the pair falls, bears will try to take control of 1.2660. If they manage to do so, a breakdown of the range will deal a serious blow to bulls' positions and push GBP/USD to the 1.2630 low with the prospect of falling to 1.2590.