US consumer confidence rises, inflation fears fall, USD/JPY poised to break out

While many traders are logging off for the year to celebrate the holidays, there are still some notable economic data releases trickling out ahead of the long weekend. Ahead of tomorrow’s US durable goods and core PCE reports, we also got a look at the state of the US consumer heading into the critical holiday period.

The just-released Conference Board Consumer Confidence report showed the headline consumer confidence index rose to 115.8, up from an upwardly-revised reading of 111.9 last month. Digging into the details, the improvement was driven entirely by consumers’ expectations, which seeks to capture the short-term outlook for income, business, and labor market conditions, whereas consumers’ assessment of their present situation remained essentially unchanged from last month.

According to a Conference Board spokeswoman, “Expectations about short-term growth prospects improved, setting the stage for continued growth in early 2022. The proportion of consumers planning to purchase homes, automobiles, major appliances, and vacations over the next six months all increased." Crucially, concerns about inflation declined after hitting a 13-year high last month, suggesting that fears over rising prices may be plateauing, though we’d like to see a sustained decline in both expectations and the actual inflation rate before assuming we’re past “peak inflation” for this cycle.

Technical analysis: USD/JPY

The news has provided a boost to the US dollar across the board, but USD/JPY is particularly interesting given the greenback’s uptrend against the yen throughout Q4 so far. As the 4-hour chart below shows, USD/JPY is pressing up against a 4-week high at 114.30 as we go to press. A confirmed breakout above this short-term resistance level could open the door for a continuation higher toward the pair’s 5-year high near 115.50 heading into the end of the year.

Source: TradingView, StoneX

Looking out a bit further, my colleague Joe Perry noted in his central bank outlook article as part of our full 2022 Market Outlook report that the BOJ is unlikely to raise interest rates or even meaningfully taper its asset purchases in 2022, so the monetary policy divergence between the US and Japan could be a bullish factor for USD/JPY throughout 2022 as well!

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