USD/JPY: Trading the UOM Consumer Sentiment December 2011

The University of Michigan Consumer Sentiment Index surveys consumer attitudes and expectations about the US economy. A reading that is higher than anticipated by the markets 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 the level of consumer confidence in the economy. Analysts and traders look to the index to help provide an answer to the all-important question of “is the US consumer optimistic or pessimistic about the economy”?

The index was up sharply in November, rising to 64.2 from a reading of 57.5 in October. The market forecast for November, at 61.3,  was within expectations. December’s forecast calls for a slight increase to 65.6. Will the index record another rise, as predicted by the market?

Sentiments and levels

Although the Japanese economy has shown some signs of life, such as in the retail sector, the  trade deficit continues to weigh on the yen. Also, investors are turning to the dollar as a safe haven currency, which impacts negatively on the yen. So, the overall sentiment is bullish on USD/JPY towards this release.

Technical levels, from top to bottom: 80, 79.50, 78.30, 77.50, 77, 76.75, 76.25 and 75.57.

5 Scenarios

1. Within expectations: 60.0 to 70.0: In such a case, USD/JPY is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: 70.1.1 to 75.0: An unexpected higher reading can send the pair above one resistance level.
3. Well above expectations: Above 75.0: The chances of such a scenario are low. A second resistance line or more might be broken on such an outcome.
4. Below expectations: 55.0 to 59.9: A poor reading could push the pair downwards, and one support level could be broken.
5. Well below expectations: Below 55.0: A severe loss in consumer confidence will hurt the dollar, and USD/JPY could drop below two or more support levels.

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