USD/JPY: Trading the University of Michigan Consumer Sentiment

The University of Michigan Consumer Sentiment Index surveys consumer attitudes and expectations about the US economy. A reading that is stronger than expected is bullish for the US dollar.

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 indicator remains at high levels, but did drop below the key 80-point level in February, coming in at 79.9 points. This fell short of the estimate of 81.9 points. The markets are expecting a stronger reading in March, with the estimate standing at 81.2 points. Will the market meet or beat this rosy prediction?

Sentiments and levels

The dreaded sales tax hike kicked in last week and is expected to weigh on the fragile Japanese economy. The BOJ has said it has no plans to increase stimulus before July, but it could be forced to act earlier if the economy takes a downturn. In the US, it seems that the economy has been picking up in the spring, thus making Yellen’s hawkish comment more powerful than her dovish ones. The dollar dipped after Nonfarm Payrolls missed the estimate last month, but the key indicator did show a strong improvement compared to the previous release. If US employment numbers remain solid, there is room for the greenback to move higher. So, the overall sentiment is bullish on USD/JPY towards this release.

Technical levels, from top to bottom: 104.10, 102.74, 101.20, 100, 0.9957 and 0.9897.

5 Scenarios

1. Within expectations: 78.0 to 84.0: In such a case, USD/JPY is likely to rise within range, with a small chance of breaking higher.

2. Above expectations: 84.1 to 88.0: An unexpected higher reading can send the pair above one resistance line.

3. Well above expectations: Above 88.0: The chances of such a scenario are low. A second resistance line could be broken on such an outcome.

4. Below expectations: 74.0 to 77.9: A poor reading could push the pair upwards, and one support line could be broken.

5. Well below expectations: Under 74.0: In this scenario, we could USD/JPY below a second support level.