USD/JPY: Trading the UOM Consumer Sentiment Index August 2013

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 a reading that is higher than forecast is bullish for the US dollar.

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

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 the critical question of “is the US consumer optimistic or pessimistic about the economy?”

The index  continues to look  strong and  has been above  the 80-point level for three straight readings. In July, the  index rose to 83.9 points. Although this  fell short  of the  estimate of 85.3 points,  the  index still  posted its  highest  level is  more than six years.  The estimate for the August release stands at 85.6 points.  Will the index follow through and   move even higher in the upcoming release?

Sentiments and levels

Japanese releases have not looked all that sharp recently, and the US dollar took advantage of a weak Japanese GDP release earlier in the week, as USD/JPY moved above the 98 line. In the US, market sentiment is strong with regard to the US economy, and strong numbers out of the US  could revive talk of QE tapering, which is a dollar-positive event. So, the overall sentiment is  bullish on USD/JPY towards this release.

Technical levels, from top to bottom: 100.85, 100.00, 98.90, 97.80, 96.71, and 93.79.

5 Scenarios

1. Within expectations: 82.0 to 90.0: In such a case, USD/JPY is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: 90.1 to 95.0: An unexpected higher reading can send the pair above one  resistance line.
3. Well above expectations: Above 95.0: The chances of such a scenario are low.  Two resistance lines could be broken on such an outcome.
4. Below expectations: 77.0 to 81.9: A weak reading could push down on the pair, and one support level could be broken.
5. Well below expectations:  Below 77.0: A sharp drop in consumer confidence will likely hurt the dollar, and USD/JPY could break two support levels.

For more on the yen, see the USD/JPY forecast.

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