USD/JPY: Trading the UOM Consumer Sentiment November 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 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 14:55 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 rising steadily since  July.  In  October, the index rose  to 83.1 points, well above the estimate of 78.1. The  markets are expecting a slight drop this month, with a forecast of    82.6. Will the index surprise the markets and continue on its upward trend?

Sentiments and levels

After the big rise by USD/JPY, some consolidation can happen, especially as the yen still is a safe haven currency. The US presidential election  boosted the dollar against some of the majors, but the yen has held its own, and has crossed below the important 80 line. The recent Japanese QE was large, but not a shocker. So, the overall sentiment is neutral on USD/JPY towards this release.

Technical levels, from top to bottom: 81.43, 80.60, 80, 79.70, 79.05, and 78.80.

5 Scenarios

1. Within expectations:  78.0 to 86.0: In such a case, USD/JPY is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: 86.1 to 90.0: An unexpected higher reading can send the pair above one resistance line.
3. Well above expectations: Above 90.0: The chances of such a scenario are low. Two or more resistance lines could be broken on such an outcome.
4. Below expectations: 73.0 to 77.9: A  weak reading could push down on the pair, and one support level could be broken.
5. Well below expectations: Under 73.0: A sharp drop in consumer confidence will likely hurt the dollar, and USD/JPY could break two or more support levels.

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