USD/JPY:Trading the UoM Consumer Sentiment November 2011

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 can help strengthen the US dollar. Thus, a reading that is higher than predicted by the markets will be 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, released monthly, is an important leading economic indicator. It helps measure 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?”

October’s reading came in at 57.5, which was disappointing, as the forecast predicted 60.2. The forecast for November’s reading  is for 61.3, which would be the highest figure since July.  Will the index  meet or beat the markets’ prediction?

Sentiments and levels

USD/JPY  rose last week after another intervention by the Bank of Japan. There are signs of recovery in the economy, as evidenced by an increase in manufacturing orders and consumer confidence. So, the overall sentiment is bearish on USD/JPY towards this release.

Technical levels, from top to bottom: .7950, .7930, .7850, 77.85, 77.50, 77 and .7625.

5 Scenarios

1. Within expectations: 57.0 to 64.5.: In such a case, USD/JPY is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: 64.6 to 68.0: An unexpected higher reading can send the pair above one resistance level.
3. Well above expectations: Above 68.0: The chances of such a scenario are low. A second resistance line or more might be broken on such an outcome.
4. Below expectations: 53.0 to 56.9: A poor reading could push the pair downwards, and one support level could be broken.
5. Well below expectations: Under 53.0: A severe loss in consumer confidence will hurt the dollar, and USD/JPY could shatter two or more support levels.

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