USD/JPY: Trading the ISM Manufacturing PMI Sep 2012

The ISM Manufacturing PMI (Purchasing Managers’ Index) is based on a survey of purchasing managers in 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 Tuesday 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 release could affect the movement of USD/JPY.

The index  has fallen  just below the important 50.0 line for the past two readings, indicating  limited contraction in the manufacturing sector. The markets are expecting some  slight improvement in September, with a forecast of 50.1 points. Will the index climb back into positive territory this month?

Sentiments and levels

The yen  benefited from the relatively dovish analysis of Ben Bernanke’s speech at Jackson Hole.  With the ECB policy meeting later this week, we could see some kind of leg dragging in Europe that could boost the safe haven yen.  Traders should keep in mind  that falls will likely be limited, even as trading volume rises. So, the overall sentiment is bearish on JPY/USD towards this release.

Technical levels, from top to bottom: 79.70, 79.10, 78.80, 78, 77.50 and 76.60.

5 Scenarios

1. Within expectations: 47.0 to 53.0: In such a case, USD/JPY is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: 53.1 to 56.0: An unexpected higher reading can send the pair well above one resistance line.
3. Well above expectations: Above 56.0: A sharp expansion in the manufacturing sector could push USD/JPY upwards, and a second resistance line might be broken as a result.
4. Below expectations: 44.0 to 46.9: A  weak reading  could push USD/JPY downwards and break one level of support.
5. Well below expectations: Below 44.0: A  sharp contraction  would indicate  deeper weakness  in the manufacturing sector. This would likely push the pair downwards, possibly breaking a second support level.

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