USD/JPY: Trading the ISM Services PMI Jul 2013

ISM Non-Manufacturing PMI (Purchasing Managers’ Index) is based on a survey of purchasing managers in the services 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 in the mid-50 range  throughout 2013, indicating expansion in the services sector. The markets are expecting little change, with an estimate of 54.3 for the July release.

Sentiments and levels

The US dollar remains strong, having benefited from speculation that QE will   be tightened, as  well as some impressive releases last week.  If  the  dollar can maintain its momentum, we could see a run towards the 100  level.  At the same time, recent Japanese data, such as the Tanken indexes  point  to improvement in the  Japanese economy, which could boost the yen.  So, the overall sentiment is neutral on USD/JPY towards this release.

Technical levels, from top to bottom: 101.50, 100.85, 100.00,  98.90,  97.80 and 96.71.

5 Scenarios

1. Within expectations: 51.0 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: 47.0 to 50.9: A weak reading could push USD/JPY downwards and break one level of support.
5. Well below expectations: Below 47.0: A very poor reading would indicate weakness in the services sector. This would likely push the pair downwards, possibly breaking a second support level.

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