USD/JPY: Trading the ISM Services PMI Mar 2014

The ISM Non-Manufacturing PMI (Purchasing Managers’ Index) is based on a survey of purchasing managers, excluding the manufacturing sector. Respondents are surveyed for their view of the economy and business conditions in the US. A reading which is higher than the market forecast is bullish for the dollar.

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

Published on Wednesday at 15:00 GMT.

Indicator Background

Analysts are always interested in the views of purchase managers about the economy, as they are considered to be attuned to the latest economic and financial developments, and their expectations could be an indication of future economic trends. Thus, PMI readings are quite important and an unexpected reading could affect the movement of USD/JPY.

The index  continues to trade  in  the mid-50s range, pointing to  expansion in the services  sector.  The January reading of 54.0 points was slightly above the reading of 53.6 points. Little change is expected for February, with the estimate standing at 53.8 points.

Sentiments and levels

The long-term direction  of  USD/JPY remains to the upside due to tightening intentions of the Fed, (recent weak US numbers and  the downwards GDP revision does not change this)  and  continuing monetary easing  of the BOJ. At the same time, two global issues are pushing safe haven flows towards the yen: the volatile situation in the Ukraine and the worries about the Chinese economic strength, which are reflected in a process of a weakening of the yuan.  This means that  the long term rise is balanced by short term headwinds.  So, the overall sentiment is neutral on USD/JPY towards this release.

Technical levels, from top to bottom: 103.77, 102.74, 102, 101.35,  100.75 and 100.

5 Scenarios

1. Within expectations: 52.0 to 56.0: In such a case, USD/JPY is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: 56.1 to 59.0: An unexpected higher reading can send the pair above one resistance line.
3. Well above expectations: Above 59.0: A sharp jump by the index could push USD/JPY upwards, and a second resistance line might be broken as a result.
4. Below expectations: 49.0 to 51.9: A weak reading could push USD/JPY downwards and break one level of support.
5. Well below expectations: Below 49.0:  Such a scenario  would likely push the pair downwards, possibly breaking a second support level.

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