USD/JPY: Trading the ISM Services PMI Oct 2013

The ISM Non-Manufacturing PMI (Purchasing Managers’ Index) is based on a survey of purchasing managers in the  services  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 14:00 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 has been  steadily rising in recent releases and hit a multi-year high of 58.6 points in August, its best performance in over two years.  This easily beat the estimate of 55.2 points. The markets are expecting a lower reading for September, with an estimate of 57.2 points.

Sentiments and levels

Recent Japanese indicators have shown improvement as inflation indicators have met expectations and the Tankan indexes looked  sharp. The US dollar has lost ground and remains under pressure due to the government shutdown this week,  with no  end in sight to the crisis.  So, the overall sentiment is  bearish on USD/JPY towards this release.

Technical levels, from top to bottom: 100, 98.90, 97.80, 96.59,  95 and 93.79.

5 Scenarios

1. Within expectations: 55.0 to 59.0: In such a case, USD/JPY is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: 59.1 to 63.0: An unexpected higher reading can send the pair  above one resistance line.
3. Well above expectations: Above 63.0: 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: 50.0 to 53.9: A weak reading could push USD/JPY downwards and break one level of support.
5. Well below expectations: Below 50.0: A  reading below 50 would indicate contraction  in the services industry. This would likely push the pair downwards, possibly breaking a second support level.

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