28.05.202509:53 Forex Analysis & Reviews: Market Conditions Favor the Dollar

Yesterday, the U.S. dollar continued to strengthen against a number of risk assets—particularly gaining ground against the euro and the British pound. Strong U.S. economic data triggered significant movements in the currency market.

In May of this year, the U.S. saw a notable rebound in consumer confidence, recovering from a nearly five-year low. The improvement was linked to more optimistic expectations for economic growth and the labor market, bolstered by hopes for an end to tariff wars.

The Conference Board's Confidence Index jumped by 12.3 points to 98—marking the largest monthly gain in four years and exceeding all economists' expectations in the survey.

The consumer expectations index for the next six months posted its biggest increase since 2011, while the current conditions index also strengthened. Confidence gains were widespread across age and income groups.

The survey deadline was May 19, after the U.S. and China agreed to temporarily reduce high tariffs on each other's goods while continuing to negotiate a trade deal. About half of the responses were collected after the agreement was reached on May 12.

"Improvement was already visible before the U.S.–China trade deal on May 12, but it accelerated afterward," said Stephanie Guichard, senior economist at the Conference Board.

The rising confidence index may suggest that fears over the trade war—a key concern in earlier surveys—have eased in recent weeks. However, President Donald Trump has since renewed threats to increase tariffs on other countries.

According to the survey, consumer expectations for the stock market improved, coinciding with a 5.8% gain in the S&P 500 since the beginning of the month.

Although the tariff issue is far from resolved—as we've seen in recent days with threats of 50% tariffs on the EU—financial markets appear ready to absorb the pressure. The latest data indicating that households also expect the trade war to end may support further economic strengthening, which would in turn bolster the U.S. dollar and stock market.

Key Takeaway:

Despite widespread concerns among consumers and businesses, the overall economy and labor market remain resilient. According to many economists, Trump's new tariff policy will likely take months to work through the economy, and the effects may be delayed and longer-lasting than previously expected.

The Conference Board report also showed that average consumer inflation expectations declined. Some respondents noted lower gas prices, while others spoke positively about food prices.

EUR/USD Technical Outlook:

Buyers now need to reclaim the 1.1340 level to aim for a test of 1.1375. From there, the next target would be 1.1420, but it will be difficult to reach that without support from major market participants. The furthest target is the 1.1450 high.

In case of a decline, I expect serious buyer activity only near the 1.1300 area. If no support appears there, it would be reasonable to wait for a retest of the 1.1260 low, or to open long positions from 1.1221.

GBP/USD Technical Outlook:

Pound buyers need to break through the 1.3495 resistance to aim for 1.3540, although further upside beyond that will be challenging. The furthest target is around 1.3585.

If the pair falls, bears will try to gain control around 1.3465. A successful breakout below this range would deal a serious blow to the bulls and push GBP/USD down to the 1.3435 low, with a further potential drop toward 1.3410.