USD/JPY: Trading the ISM Manufacturing PMI Nov 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 Thursday 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.

Manufacturing PMI crossed the important 50.0 level in  September, climbing to 51.5 points. It was the first time the index was above this line since June. The market estimate calls for another month of slight expansion in the manufacturing sector, with an estimate of 51.2 points.

Sentiments and levels

The US continues to show some signs of growth and with the markets  digesting yet another  worrying trade balance report in Japan, there is room for more gains after the channel was broken. A lot will depend on  what steps, if any the  BOJ takes. A package of 20 trillion yen would certainly convince the markets that the BOJ means business. 10 trillion would not be enough for another burst higher. So, the overall sentiment is  bullish on USD/JPY towards this release.

Technical levels, from top to bottom: 80.60, 80.20, 80, 79.70, 79.05, and 78.80.

5 Scenarios

1. Within expectations: 48.0 to 54.0: In such a case, USD/JPY is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: 54.1 to 57.0: An unexpected higher reading can send the pair above one resistance line.
3. Well above expectations: Above 57.0: 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: 45.0 to 47.9: A weak reading could push USD/JPY downwards and break one level of support.
5. Well below expectations: Below 45.0: A sharp contraction by the index would indicate more contraction in the manufacturing sector. This would likely push the pair downwards, possibly breaking a second support level.

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

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