USD/JPY: Trading the Consumer Sentiment October 2012

The University of Michigan Consumer Sentiment Index surveys consumer attitudes and expectations about the US economy. An increase in consumer confidence is a positive sign about the health of the economy and can help strengthen the US dollar. Thus, a reading that is higher than predicted by the markets will be bullish for the dollar.

Here are all the details, and 5 possible outcomes for USD/JPY.

Published on  Friday at 13:55 GMT.

Indicator Background

The University of Michigan Consumer Sentiment Index, released monthly, is an important leading economic indicator. It helps measure future consumer spending behavior, and provides an indication of consumer confidence in the economy. Analysts look to the index to help answer the basic, yet crucial question of “is the American consumer optimistic or pessimistic about the economy?”

The Sepember release came in at 79.2 points, well above the market estimate. The markets are expecting a drop this month, to 78.1. A reading which is above the forecast would likely boost confidence in the US economy.

Sentiments and levels

A positive Non-Farm Payrolls report  is likely to boost investor confidence, together with heightened rhetoric from the new Japanese finance minister support more gains for  USD/JPY.  It’s important to note that moves in this pair remain limited. So, the overall sentiment is bullilsh on USD/JPY towards this release.

Technical levels, from top to bottom: 79.70, 79.05, 78.80, 78, 77.40 and 77.

5 Scenarios

1. Within expectations:  75.0 to 81.0.: In such a case, USD/JPY is likely to rise within range, with a small chance of breaking higher.
2. Above expectations:  81.1 to 85.0: An unexpected higher reading can send the pair above one resistance level.
3. Well above  expectations: Above 85.0: The chances of such a scenario are low. A second resistance line or more might be broken on such an outcome.
4. Below expectations:: 71.0 to 74.9: A poor reading could push the pair downwards, and one support level could be broken.
5. Well below expectations: Under 71.0: A sharp loss in consumer confidence  would hurt the dollar, and USD/JPY could  break two or more support levels.

For more on the yen, see the  USD/JPY forecast.