USD/JPY: Trading the ISM Services PMI Apr 2013

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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 by Non-Manufacturing PMI could affect the movement of USD/JPY.

The index has been solid in recent readings, trading in the mid-50 range. This indicates sustained expansion in the non-manufacturing sectors. The March reading came in at 56.0 points, and the upcoming estimate is almost identical, at 55.9 points.

Sentiments and levels

The general direction of USD/JPY continues to be the topside, but the tremendous expectations from Haruhiko Kuroda could result in a disappointment, if he only enlarges the QE program at the next BOJ policy meeting, and shies away from further easing steps. This is the BOJ’s first policy meeting under Kuroda’s helm, and the markets will be monitoring it very closely. Kuroda could take a two-step approach due to political reasons, and later proceed with bringing forward the open-ended QE idea laid out by the former governor, Masaaki Shirakawa. So, the overall sentiment is bearish on USD/JPY towards this release.

Technical levels, from top to bottom: 94.40, 93.84, 92.95, 92.12, 91.20 and 90.

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 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: 50.0 to 52.9: A weak reading could push USD/JPY downwards and break one level of support.
  5. Well below expectations: Below 50.0: A reading below 50.0 would indicate contraction. This would likely push the pair downwards, possibly breaking a second support level.

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About Author

Kenny Fisher - Senior Writer A native of Toronto, Canada, Kenneth worked for seven years in the marketing and trading departments at Bendix, a foreign exchange company in Toronto. Kenneth is also a lawyer, and has extensive experience as an editor and writer.

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