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As we start 2013, the first key release will be the ISM Manufacturing PMI (Purchasing Managers’ Index) on Wednesday.  This index is based on a survey of purchasing managers in the manufacturing sector, who are asked for their views 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  very  significant and an unexpected release could affect the movement of USD/JPY.

The index disappointed last month, falling below the 50 point threshold  to 49.5 points. For the January reading, the markets are expecting the index to barely cross above the 50 level, with an estimate of 50.2. Will the index meet or beat the market forecast?

Sentiments and levels

The new Japanese government continues to keep up the pressure on the BOJ to continue to increase monetary easing. Such steps, which we could see  later in January, would hurt the yen, which has  already posted sharp losses against the dollar.  In the US, the markets breathed a sigh of relief as  lawmakers managed to avoid, or at least  delay the  fiscal cliff with a last-minute agreement. This development  could be dollar negative, at least in the short term. So, the overall sentiment is  neutral on JPY/USD towards this release.

Technical levels, from top to bottom: 90, 89.10, 88, 86.96,  86.27 and 85.50.

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  very  low reading  would indicate  deep contraction  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.

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