The consensus for consumer sentiment is for a reading of 62.0 following April's 62.6 level.

Dustin Reid, currency analyst from ABN Amro, said he is expecting a weaker print in the University of Michigan/Reuters consumer sentiment. He added he doesn't expect big moves in the U.S. dollar unless the number is "massively" lower than the consensus.

"I would be surprised if the University of Michigan sentiment index was broadly in line with April's final number. As such, if it were to be similar to last month's print, I do believe that it would get discounted by the market quite quickly," he said.

Guy LeBas, fixed income strategist from Jenney Montgomery Scott, said that although he doesn't forecast Michigan, he doesn't expect any improvement in consumer sentiment in general.

He said the biggest concern currently facing consumers is the decline in housing prices, which is also dragging down spending.

"With the inability to extract cash from your home, it's hard to be confident and it's hard to justify spending on non-necessity and luxury goods," he said.

Although the Michigan survey is expected to remain relatively stable, LeBas said that might not necessarily be good news. He pointed out consumer sentiment has dropped sharply over the last year.

"Over the course of the last 12 months, we are down 25% on the headline index, so we have already seen sharp drops. I think the real question is whether sentiment can get worse from here, and there is certainly the possibility for that," he said. "But April has been a relatively encouraging month, (and) the beginning of May has not been disastrous."

Economists expect housing starts to come in at 935,000 units, down from March's 946,000 units. Building permits are expected to come in at 910,000, also down from March's reading of 927,000.

George Adell, fixed income strategist from Commerce Capital Markets, said that markets will move more on the housing starts than the consumer sentiment report. He added everyone knows that U.S. consumers are feeling the pinch partly because of what is happening in the housing market.

"If the housing starts and permits remain weak, that will support Treasuries tomorrow," he said.

All times in EDT

Friday

8:30 CA New Motor Vehicle Sales (Monthly) March Exp: Unchanged Prior: -3.2%

8:30 US Housing Starts April Exp: 939K Prior: 947K

8:30 US Building Permits April Exp: 915K Prior: 927K

10:00 US University of Michigan/Reuters consumer Sentiment May Preliminary Exp: 62.0 Prior: 62.6

11:20 US Fed's Braunstein, Goldman's Hatzius Speak on Mortgage Market

12:00 US TSY's Pauslon speaks on U.S. Housing and Credit Markets at an event in Washington D.C.

By Neils Christensen, This email address is being protected from spam bots, you need Javascript enabled to view it , edited by Nancy Girgis, This email address is being protected from spam bots, you need Javascript enabled to view it