EUR/USD: Trading the UoM Consumer Sentiment February 2012


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 can help strengthen the US dollar. As well, a reading which is higher than the market forecast is bullish for the greenback.

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

Published on Friday at 14:55 GMT.

Indicator Background

The University of Michigan Consumer Sentiment Index, released monthly, is an important leading economic indicator and often a market-mover. 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 previous release came in at 74.0, better than the market forecast, and the index’s best reading since February 2011. The markets are not anticipating any change in this month’s reading, with a prediction of 74.4. Will the index again beat the market forecast?

Sentiments and levels

All eyes are on the EU bailout agreement for Greece, which has run into further snags. This uncertainty is not bad for the markets, and is weighing on the euro. Across the pond, US economic data is good, and the dollar may be due for a correction against the euro. So, the overall sentiment has turned from neutral to bearish on EUR/USD towards this release.

Technical levels, from top to bottom: 1.3450, 1.3330, 1.3280, 1.3212, 1.3145, 1.3060 and 1.30.

5 Scenarios

  1. Within expectations: 64.0 to 74.0: In such a case, EUR/USD is likely to rise within range, with a small chance of breaking higher.
  2. Above expectations: 74.1 to 79.0: An unexpected higher reading can send the pair below one support level.
  3. Well above expectations: Above 79.0: On such an outcome, EUR/USD could drop below two or more support levels.
  4. Below expectations: 59.0 to 63.9: A poor reading could push the pair upwards, and one resistance level could be broken.
  5. Well below expectations: Below 58.9: Given the improving US economy, this scenario is unlikely. In such a case, EUR/USD could break two or more resistance levels.

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

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About Author

Kenny Fisher - Senior Writer A native of Toronto, Canada, Kenneth worked for seven years in the marketing and trading departments at Bendix, a foreign exchange company in Toronto. Kenneth is also a lawyer, and has extensive experience as an editor and writer.

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