USD/JPY: Trading the ISM Manufacturing PMI Oct 2011

The ISM Manufacturing PMI (Purchasing Manager Index) is based on a survey of purchasing managers active in the critical  manufacturing sector. Respondents are surveyed for their view of the economy and business conditions in the US. This important economic indicator is released during the first week of every month.

Here are all the details, and 5 possible outcomes for USD/JPY.

Published on Tuesday at 14:00 GMT.

Indicator Background

Market analysts are always interested in the views of purchase managers on the economy, as the latter are considered to be attuned to the latest economic and financial developments, and their expectations could be an indication of the health of the economy. Any index reading over 50 indicates economic expansion.

After falling to a two-year low in September of 50.6, the index has been inching up slowly, with the October figure of 51.6 exceeding the market forecast of 50.5. November’s forecast is set slightly higher, for a reading of 52.3. Will the modest upward trend continue? A higher reading than forecast points to industrial expansion and is bullish for the dollar.

Sentiments and levels

Economic indicators in Japan remain mixed,  with manufacturing activity, which dropped in September, remaining a serious concern.   USD/JPY  hit new lows recently, increasing the likelihood of intervention by the Bank of Japan. Thus, the overall sentiment is neutral on USD/JPY towards this release.

Technical levels, from top to bottom: 78.50, 77.85, 77.50, 77, 76.25 and 75.66.

5 Scenarios

1. Within expectations: 51.6 to 53.0: In such a case, USD/JPY is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: 53.1 to 54.0: An unexpected higher reading can send the pair well above one resistance line.
3. Well above expectations: Above 54.0: The chances of a sharp expansion are low. Such an outcome would prop up USD/JPY, and a second resistance line might be broken as a result.
4. Below expectations: 50.6 to 51.5: A sharper decrease than forecast could cause the pair to drift and lose one level of support.
5. Well below expectations: Below 50.6: A reading close to or below the all-important  reading of 50  would push USD/JPY downwards, possibly breaking a second support level.

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