The University of Michigan Consumer Sentiment Index surveys consumer attitudes and expectations about the US economy. An increase in consumer confidence leads to more consumer spending which is critical for economic growth. A reading which is higher than the estimate is bullish for the US dollar.
Here are all the details, and 5 possible outcomes for EUR/USD.
Published on Friday at 13:55 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”?
In February, the UoM Consumer Sentiment was up sharply, climbing to 76.3 points. This easily beat the forecast of 74.8 points. The forecast for the March release stands at 78.2 points. Will the indicator again beat the estimate?
Sentiments and levels
While Draghi was doing his best to sound optimistic about the Eurozone, there are two basic reasons for EUR/USD to fall. First, the weakness of the European economies is serious. Spain and Italy are not doing well. This was underscored as the Fitch ratings agency downgraded the debt of both of these countries last week. France is also in trouble, and Germany, the workhorse of Europe, is also going through some turbulence, as seen in factory orders and industrial output. The second reason is the strength of the US economy: the pace of the recovery is picking up, as seen in jobs and in the services sector PMI. And that builds on changing forex dynamics: the dollar now benefiting from positive US data, something that wasn’t that common in the “risk on / risk off” environment. So, the overall sentiment remains bearish on EUR/USD towards this release.
Technical levels, from top to bottom: 1.3100, 1.3030, 1.30, 1.2960, 1.2880 and 1.2805.
5 Scenarios
- Within expectations: 74.0 to 82.0: In such a case, EUR/USD is likely to rise within range, with a small chance of breaking higher.
- Above expectations: 82.1 to 86.0: An unexpected higher reading can send the pair below one support level.
- Well above expectations: Above 86.0: The chances of such a scenario are low. A second support line or more might be broken on such an outcome.
- Below expectations: 70.0 to 73.9: A poor reading could push the pair upwards, and one resistance level could be broken.
- Well below expectations: Under 70.0: A sharp drop in consumer confidence will 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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