EUR/USD: Trading the UOM January 2015

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 is bullish for the US dollar.

Update:  US Consumer Sentiment jumps to 98.2 – better  than expected

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

Published on  Friday at 14:55 GMT.

Indicator Background

The  UoM Consumer Sentiment Index, which is released monthly, is an important leading economic indicator. It helps measure future spending behavior, and provides an indication of consumer confidence in the economy. Analysts look to the index to help answer that all-important question of “is the US consumer optimistic or pessimistic about the economy”?

The  index improved for a fourth straight month, climbing to  93.8 points in December. This beat the estimate of 89.6 points.  The markets are expecting the trend to continue, with the estimate standing at 94.2 points. Will the indicator match or  beat this rosy expectation?

Sentiments and levels

QE is  appearing more and more likely and  we could see the ECB press the trigger at the  January 22 meeting, after the euro-zone officially slipped into deflation. Weak oil prices and sluggish growth in Europe means  that  we are unlikely to see much improvement in  the inflation picture.  Concern about Greece and the tragic terror attack in Paris also weighed in. In the US, the economy  continues to look good, with  252K jobs gained in December, but the slip in wages is causing some worries. So, the overall sentiment is  neutral on EUR/USD towards this release.

Technical levels, from top to bottom: 1.1920, 1.1867, 1.1750, 1.17,  1.1620 and  1.15.

 

5 Scenarios

1. Within expectations: 91.0 to 97.0: In such a case, EUR/USD is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: 97.1 to 101.0: An unexpected higher reading can send the pair below one support level.
3. Well above expectations: Above 101.0: The chances of such a scenario are low. A second support line or more might be broken on such an outcome.
4. Below expectations: 87.0 to 90.9: A poor reading could push the pair upwards, and one resistance level could be broken.
5. Well below  expectations:  Below 87.0: A sharp  drop in consumer confidence would likely  hurt the dollar, and EUR/USD could break above  two or more resistance levels.

For more on the euro, see the  EUR/USD forecast.

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