USD/JPY: Trading the US CB Consumer Index May 2013

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

Published on Tuesday at 14:00 GMT.

Indicator Background

The CB Consumer Confidence Index provides  important readings about consumer confidence and spending. The indicator is a market-mover, given that consumer spending is a vital component of economic growth.

After a disappointing reading in March, the indicator rebounded sharply in April, climbing to 68.1 points, which easily surpassed the estimate of 61.4 points. The markets are expecting even better news from the upcoming release, with a forecast of 70.7 points. Will the index meet or beat the rosy prediction?

Sentiments and levels

The recent  volatility  which hit USD/JPY  served as a consolidation and correction phase before the next move higher. The extreme monetary policies of the Japanese government and the central bank are likely to drive the yen lower. The BOJ will probably do whatever it can to lower bond yields, and this in turn will likely turn into yen weakness. While these policies might be dangerous,  it seems that the Japanese authorities are more likely to double the bet than to retreat and make the early success a permanent one,  especially if deflation continues.

In the US,  we’re hearing hints from the Fed that it  is more likely to taper bond  purchases than increase them.  This will probably come later rather than sooner, giving stock markets and the economy more space to rise, but it doesn’t seem likely that the Fed will increase QE, especially in light of the recent signs of improvement  in the US economy.

Technical levels, from top to bottom: 102.80, 102, 101.44, 100.66, 100 and 0.9890

5 Scenarios    

1. Within expectations: 67.0 to 75.0: In such a case, USD/JPY is likely to rise within range, with a small chance of breaking higher.
2. Above expectations:  75.1 to 79.0: An unexpected higher reading can send USD/JPY above one resistance level.
3. Well above expectations: Above 79.0: Another sharp increase in consumer confidence could propel the pair above two or more resistance levels.
4. Below expectations: 71.0 to 74.9: A reading lower than forecast could send USD/JPY below one support level.
5. Well below expectations: Below 71.0:  An unexpected weak reading would likely  push the pair  below two or more support levels.

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

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