USD/JPY: Trading the ISM Services PMI Oct 2012

The ISM Non-Manufacturing PMI (Purchasing Managers’ Index) is based on a survey of purchasing managers, excluding  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 index has  been above the important 50.0 point line throughout 2012, indicating  industry expansion. The markets are expecting little change, with an estimate  of 53.4 for October.

Sentiments and levels

The ongoing global slowdown, and especially the US weakness will likely continue pushing the yen higher. On the other hand, Japan’s weakness and the threat of intervention by the BOJ to  prevent  an even stronger yen  will likely balance the move. So, the overall sentiment is  neutral on JPY/USD towards this release.

Technical levels, from top to bottom: 79.70, 79.05, 78.80, 78, 77.40 and 77.

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 65.0: An unexpected higher reading can send the pair above one resistance line.
3. Well above expectations: Above 65.0: 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: 47.0 to 52.9: A weak reading could push USD/JPY downwards and break one level of support.
5. Well below expectations: Below 47.0: A sharp contraction by the index  would indicate more contraction in the US economy. This would likely push the pair downwards, possibly breaking a second support level.

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