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The preliminary release of US Consumer Sentiment by the University of Michigan is the last big release of the week and usually triggers action. Here is what expects us, and possible outcomes for USD/JPY, the preferred pair for the week’s last session.

Published on Friday at 13:55 GMT.

Indicator Background

The University of Michigan, together with Reuters, has a rather small survey of only 500 consumers. Nevertheless, this is a highly regarded survey and always rocks currencies. In addition, the publication at the end of the trading week, gives it higher importance. It is the last major publication before the markets winds down – the last taste of the US and global economies.

Strong consumer sentiment is critical in the US, that depends heavily on consumption. One of the goals of QE2 was to increase consumer spending and prevent deflation – where consumers put off purchases in anticipation of price falls.

During the winter, the score was quite high, in the mid to high 70s. This was partially due to rising stock markets. Then came March, with a big drop in consumer sentiment under 70. This big disappointment was followed by gradual rises up to 74.3 last month. A similar number is expected now.

Sentiment and technical levels

In many of the the recent Fridays, bad news from Europe turned into an avalanche in EUR/USD, unrelated to US economic indicators. This makes the more solid Dollar/yen the preferred pair.

The sentiment is rather balanced now regarding USD/JPY. Both economies aren’t doing too good, and both are considered “safe haven” currencies.

Technical levels from top to bottom: 83.40, 82.20, 81.33, 80.40, 79.75, 79.16 and 78.27

5 Scenarios

  1. Within expectations: 73 to 75 points – in this case, the pair rocks but is unlikely to get out of range.
  2. Above expectations: 75 to 77 points. A high score within the peak seen a few months ago will provide a boost for the dollar. It is likely to rise and can break one resistance level.
  3. Well above expectations: Above 77 – a break above to levels unseen in a long time isn’t likely in the current environment. In such a case, dollar/yen might test even a second level of resistance.
  4. Below expectations: 70 to 73 – A slide back to previous levels might see a weakening of USD/JPY, with a potential break under support.
  5. Well below expectations: Below 70 – Another significant pullback after the gradual recovery will end the week with a sour taste for the dollar. The pair can dive and test a second support line, in areas where an intervention will be considered.

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