USD/JPY: Trading the University of Michigan October 2014

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

Here are all the details, and 5 possible outcomes for USD/JPY.

Published on Friday at 13:55 GMT.

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 rebounded sharply last month, hitting 84.6 points, ahead of the estimate of 83.2 points. This was the indicator’s strongest showing in close to two years. Another strong reading is expected, with the estimate standing at 84.3 points.

Sentiments and levels

After almost two months of weekly gains, we were bound to see a correction from USD/JPY, and this did indeed occur last week. However, US numbers remain strong, and the divergence in monetary policy remains, with the Fed winding up QE while the BoJ is considering adding more stimulus. So we could see the US dollar recover fairly from last week’s losses. Thus, the overall sentiment is bullish on USD/JPY towards this release.

Technical levels, from top to bottom: 110.68, 102.74, 101.20, 100, 0.9957 and 0.9897.

5 Scenarios

1. Within expectations: 82.0 to 87.0: In such a case, USD/JPY is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: 87.1 to 91.0: An unexpected higher reading can send the pair above one resistance line.
3. Well above expectations: Above 91.0: The chances of such a scenario are low. A second resistance line could be broken on such an outcome.
4. Below expectations: 78.0 to 81.9: A poor reading could push the pair upwards, and one support line could be broken.
5. Well below expectations: Below 77.9: In this scenario, USD/JPY could break below a second support level.

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

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