USD/JPY: Trading the ISM Manufacturing PMI Apr 2013

The ISM Non-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 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 previous release was a major disappointment, as the PMI dropped to 51.3 points, well below the estimate of 54.2 points. The May forecast stands at 51.0 points. Will the indicator bounce back and beat the estimate?

Sentiments and levels

The long term direction of USD/JPY is upwards, but we shouldn’t expect a dramatic leap over the 100 barrier just yet. Weak readings out of the US means that we can expect the QE program to continue. As well there are fresh worries from Europe, with a rate cut a defiinite possibility. So, the pair could take a longer pause for now, at least until the next BOJ meeting. The last one, which was held only weeks after the big delivery of QE, ,disappointed the yen bears and left them hungry. So, the overall sentiment is neutral on USD/JPY towards this release.

Technical levels, from top to bottom: 100, 98.90, 97.80, 96.71, 95.88 and 95.

5 Scenarios

1. Within expectations: 48.0 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 above one resistance line.
3. Well above expectations: Above 56.0: 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 strong 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.