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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 confidence beats expectations at 89.4 points

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

Published on  Friday at 16:55 GMT.

Indicator Background

The University of Michigan 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 has been trading  at high levels, with readings above the 80-point level for most of 2014.  The September reading improved to 86.4 points, compared to 84.6 points a month earlier. The upward trend is  expected to continue, with an estimate of 87.3 points for the October reading.

Sentiments and levels

As the Eurozone continues to struggle, the general direction for EUR/USD remains down, with some analysts targeting 1.20 and others even  calling for 1.18. Monetary policy divergence isn’t fully priced in. The ECB made it crystal clear that it is ready to print more euros to battle low inflation. In the US, jobs are being added at a steady pace, and even salary rises could be around the corner, forcing the Fed to act sooner than later.

At the same time, traders should be prepared for a possible correction. Back in October, EUR/USD bottomed out at clear support at 1.25 after the NFP and began a correction. We may be seeing some kind of correction now, with the bounce off 1.2360 and the close above 1.2440.  A correction isn’t likely to last for too long or to go too far, but another  immediate leg lower seems less likely. So, the overall sentiment is  neutral on EUR/USD towards this release.

Technical levels, from top to bottom: 1.2660, 1.2570, 1.25, 1.2440, 1.2360 and 1.2250.

 

5 Scenarios

  1. Within expectations: 84.0 to 91.0: In such a case, EUR/USD is likely to rise within range, with a small chance of breaking higher.
  2. Above expectations: 91.1 to 95.0: An unexpected higher reading can send the pair below one support level.
  3. Well above expectations: Above 95.0: The chances of such a scenario are low. A second support line or more might be broken on such an outcome.
  4. Below expectations: 80.0 to 83.9: A poor reading could push the pair upwards, and one resistance level could be broken.
  5. Well below  expectations:  Below 80.0: A sharp  drop in consumer confidence will  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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