USD/JPY: Trading the ISM Manufacturing PMI Jun 2014

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

The index has been pointing to expansion in the manufacturing sector throughout 2014, as it continues to produce readings above the 50-point level. The index came in at 55.4 points last month, slightly short of the  estimate of 55.7.

Sentiments and levels

The long term direction of  USD/JPY is upwards, thanks to a closer proximity of a rate hike in the US than in Japan.  The yen has not been able to  capitalize on the broad weakness of the US dollar, which resulted from a dismal GDP reading for Q1. Is it time for the yen to  slide? The early Non-Farm Payrolls report could be the trigger, as more current US economic indicators look positive. So, the overall sentiment is  bullish 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: 53.0 to 59.0: In such a case, USD/JPY is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: 59.1 to 63.0: An unexpected higher reading can send the pair above one resistance line.
3. Well above expectations: Above 63.0: 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: 49.0 to 52.9: A weak reading could push USD/JPY downwards and break one level of support.
5. Well below expectations: Below 49.0: 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.