EUR/USD: Trading the UoM Consumer Sentiment

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 is bullish for the US dollar.

Indicator Background

The UoM 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 optimism of the US consumer. The indicator is closely watched by analysts, as consumer confidence is closely linked to consumer spending, a key driver of economic growth.

The index improved jumped to 91.6 points in November, but this fell well short of 87.4 points. The upward trend is expected to continue in December, with a reading of 94.3 points.

Sentiments and levels

The ECB is expected to continue QE, but could opt to lower the monthly purchases, which currently amount to 80 billion/mth. With the Fed virtually certain to raise rates next week, monetary policy divergence continues to favor the US dollar. So, the overall sentiment is bearish on EUR/USD towards this release.

Technical levels, from top to bottom: 1.10, 1.0960, 1.0850, 1.0780, 1.0710 and 1.0690

5 Scenarios

1. Within expectations: 91.0 to 98.0: In such a case, EUR/USD is likely to rise within range, with a small chance of breaking higher.

2. Above expectations: 98.1 to 102.0: An unexpected higher reading can send the pair below one support level.

3. Well above expectations: Above 102.0: The chances of such a scenario are low. Two or more support lines could be broken on such an outcome.

4. Below expectations: 87.0 to 90.9: A poor reading could push the pair upwards, and one resistance level could be broken.

5. Well below expectations: Below 87.0: A sharp drop in consumer confidence would likely hurt the dollar, and EUR/USD could break above two or more resistance levels.