USD/JPY:Trading the Preliminary University of Michigan Consumer Sentiment

USD/JPY:Trading the Preliminary University of Michigan Consumer Sentiment

The Preliminary University of Michigan Consumer Sentiment Index surveys consumer attitudes and expectations about the US economy.  A reading that is higher than predicted by the markets is  bullish for the 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 helps measures future consumer spending behavior, and provides an indication of consumer confidence in the economy.  Analysts look to the index to help answer the basic, yet crucial question of “is the American consumer optimistic or pessimistic about the economy?”

The index is clearly pointing to an improving economy in the US. The indicator has risen for the past three consecutive readings, reaching 67.7 in December. The market forecast for this month calls for another jump, up to 71.2. Will the index continue the upwards swing?

Sentiments and levels

USD/JPY is now trading  below 77.  This is close to a floor,  fuelling speculations that the authorities may intervene to  push  the yen downwards.  With an improving US economy, and Europe mired in a crippling financial crisis, there is a good opportunity for the dollar to strengthen. So, the overall sentiment is bearish on USD/JPY towards this release.

Technical levels, from top to bottom: 79.50, 78.30, 78.50, 77.50, 77, 76.60, 76.25  and 75.95.

5 Scenarios

  1. Within expectations:  67.0 to 75.0: In such a case, USD/JPY is likely to rise within range, with a small chance of breaking higher.
  2. Above expectations:  75.1 to 79.0: An unexpected higher reading can send the pair above one resistance level.
  3. Well above expectations: Above 79.0: The chances of such a scenario are low. A second resistance line or more might be broken on such an outcome.
  4. Below expectations: 63.0 to 66.9: A poor reading could push the  dollar downwards, and one support level could be broken.
  5. Well below expectations: Under 63.0: 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.


Kenny Fisher

Kenny Fisher

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.