USD/JPY: Trading the Philly Fed Manufacturing Index

This survey is highly regarded by the markets, as it serves as an early indicator about the state of the economy. The upcoming release is of even higher importance after the shocking drop to negative territory reported last month. Here are the details and 5 scenarios for USD/JPY.

Published on Thursday at 14:00 GMT.

Indicator Background

The  Philadelphia branch of the Federal Reserve publishes data for July, already during July. The freshness of the data, which doesn’t undergo revisions, makes it an important indicator and an early bird for more comprehensive figures published later, such as the ISM Manufacturing PMI.

Volatility is quite high here: after peaking at 43.4 points in March, it made a dive to 18.5 in April and deteriorated quickly. The drop to -7.7 points last month wasn’t expected by the most pessimist forecasters. A negative number means that conditions are worsening.

A correction is expected now in this 250 strong survey. The score is expected to lift its head above the water and to reach +3.4 points. But, the last time that a negative number was seen, it took another negative month before a recovery was seen.

Sentiment and Levels

USD/JPY is chosen for this release, as it can isolate the publication from the noise coming from the European summit, held at the same time in Brussels. Both the dollar and the yen are “safe haven” currencies, and the pair reacts well to US releases.

After some kind of breakthrough was reached in regards to raising the debt ceiling in the US, the trend is slightly dollar bullish.

Technical levels, from top to bottom: 82.87, 82.20, 81.33, 81.06, 80.70, 80, 79.75, 79.30, 78.90 and 78.30.

5 Scenarios

1. Within expectations: +0.1 to +7 points: In this case of an expected return to a positive number, the pair will shake and will likely edge up within range.
2. Above expectations: +7.1 to +18 points: A rise to better levels will likely send USD/JPY above one resistance level, to a comfortable place there.
3. Well above expectations: Above +18 points. Such a result is quite unlikely. Dollar/yen can jump above two resistance levels and settle there on a return to strong growth.
4. Below expectations: -7.7 to 0: Another negative number, yet above last month, will weigh on the dollar. It will slide, and might break lower.
5. Well below expectations: -7.8 or lower: Further deterioration will be depressing for the greenback, and cannot be ruled out. A loss of a second support level for USD/JPY is possible.