USD/JPY: Trading the US Consumer Sentiment

The initial release of US Consumer Sentiment by the University of Michigan is the last indicator for this week. As the turmoil in the market continues, Dollar/yen is a pair that can react in an isolated manner to this event.

Here are the details, and 5 scenarios for this event.

Published on Friday, at 13:55 GMT.

Indicator Background

Reuters and the University of Michigan provide a highly regarded consumer sentiment indicator, despite the small size of the sample: around 500 participants.

Higher consumer sentiment means more spending and more economic activity. Without confidence, people buy less, save more, and maintain the painfully slow recovery.

According to them, the mood has improved towards the summer, with the index rising back to the 70s once again.  The indicator did slide back though last month, from 74.3 to 71.5 points.

A rise to 72.5 is expected now.

The event is the last major economic indicator this week. A special event will occur later, the release of the European bank stress tests. This makes trading EUR/USD out of the question.

Sentiment and Levels

USD/JPY is currently the best pair for trading US events. It reacts in a “normal” way: a better figure helps the pair, while a weaker one hurts it. Both currencies are “safe haven” ones at the moment. Other currencies have other numbers influencing them. We have seen this correct reaction with the release of the Non-Farm Payrolls.

The sentiment is quite balanced, and the pair is trading in a rather narrow range.

Technical levels from top to bottom: 82.87, 82.20, 81.33, 81.06, 80.70, 80.00, 79.75 and 79.16

5 Scenarios

1. Within expectations: 72 to 73 points: USD/JPY will shake, but is unlikely to break any levels.
2. Above expectations: 73 to 74.5 points: Moving higher but within recently seen figures gives the pair a chance to break one resistance level.
3. Well above expectations: Above 74.5 points. There is little chance that these high levels will be seen now, given the high unemployment. In such a case, there’s an excellent chance for a breakout above one level and a challenge of a second one.
4. Below expectations: 70 to 72 points: A disappointment, once again, will drag the pair down, with a good chance of breaking lower.
5. Well below expectations: Under 70 points. Given the recent NFP, a dive in sentiment is on the agenda. The pair can break more than one level.