EUR/USD: Trading the UoM September 2014

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 84.6 in August

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

Published on  Friday at 13:55 GMT.

Indicator Background

The UoM Consumer Sentiment, 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 has been trading  at high levels, but dipped below the 80 line last month, with a reading of 79.2 points. The markets are expecting an upswing, with the estimate standing at 83.2 points. This would be the indicator’s highest level in over a year, so if the indicator can meet or beat the forecast, we could see the dollar gain some ground.

Sentiments and levels

The long term trend for EUR/USD remains down, and will probably remain so until the pair gets closer to 1.20. With  weak Eurozone growth and a diverging monetary policy with the US, the fundamentals for a weaker euro are well in place, if to quote Draghi. The president of the ECB certainly hit the pair hard and it is not over yet. Nevertheless, after the big fall, the disappointing US NFP and the aforementioned support line, we may some consolidation before a resumption of the downwards move.

The wild card  in all this is  the volatile situation in Ukraine: the chill in Russian-European relations is taking a toll on the Eurozone  economy  and further fighting could weigh on the euro.  So, the overall sentiment is  neutral on EUR/USD towards this release.

Technical levels, from top to bottom: 1.31, 1.30, 1.2940, 1.2920,  1.2840 and  1.28.

 

5 Scenarios

1. Within expectations: 81.0 to 85.0: In such a case, EUR/USD is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: 85.1 to 89.0: An unexpected higher reading can send the pair below one support level.
3. Well above expectations: Above 89.0: The chances of such a scenario are low. A second support line or more might be broken on such an outcome.
4. Below expectations: 77.0 to 80.9: A poor reading could push the pair upwards, and one resistance level could be broken.
5. Well below  expectations:  Below 77.0: A sharp  drop in consumer confidence would  likely  hurt the dollar, and EUR/USD could break two or more resistance levels.

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

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