USD/JPY: Trading the ISM Manufacturing PMI Oct 2013

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 Friday 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 from the Manufacturing PMI could affect the movement of USD/JPY.

The index has been  pointing to expansion in the manufacturing sector, as  it  continues to produce readings in  the mid-50 range. As well, the past four releases have surpassed their estimates. The index came in at 56.2 points in September, but the upcoming release is expected to drop slightly to 55.3 points.

Sentiments and levels

USD/JPY was unable to sustain much movement in either direction last week, and this could continue. The dollar managed to post modest gains against the yen last week, despite weak employment and manufacturing data out of the US.  However, with the Fed deciding  to maintain the current levels of QE, we could see the dollar lose ground against the major  currencies. So, the overall sentiment is neutral on USD/JPY towards this release.

Technical levels, from top to bottom:  101.44, 100, 98.90, 97.80, 96.59 and 95.

5 Scenarios

1. Within expectations: 52.0 to 58.0: In such a case, USD/JPY is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: 58.1 to 62.0: An unexpected higher reading can send the pair above one resistance line.
3. Well above expectations: Above 62.0: 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: 48.0 to 51.9: A weak reading could push USD/JPY downwards and break one level of support.
5. Well below expectations: Below 48.0: A sharp contraction by the index  would  indicate trouble in the manufacturing sector.  This would likely push the pair downwards, possibly breaking a second support level.

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