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The Philadelphia Fed Manufacturing Index is an important leading indicator, based on a survey of manufacturers in the Philadelphia area. It examines manufacturers’ opinions of business activity, and helps provides a snapshot of the health of the manufacturing sector. A reading which exceeds the forecast is bullish for the dollar.

Update:  Philly Fed Manufacturing Index slides to 24.5 points

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

Published on Thursday at 15:00 GMT.

Indicator Background

The Philadelphia Fed Manufacturing Index measures regional manufacturing growth. The manufacturing sector is a vital component of the economy and the index provides a useful reading for determining whether the economy is in a growth or contraction phase.

The index jumped in November, posting a reading of 40.8 points, compared to 20.7 points. This crushed the estimate of 18.9 points. The markets are expecting a smaller gain in December, with the forecast standing at 26.3 points.

Sentiments and levels

The dollar pushed above the psychologically important 120 line last week, although the yen  managed to recover.  Still,  USD/JPY remains at  high  levels and the monetary divergence will continue to weigh on the pair.  As well, the  US economy is showing broad strength and continues to outperform its Japanese counterpart. So, the overall sentiment is  bullish on USD/JPY towards this release.

Technical levels, from top to bottom: 121.39, 119.88, 117.94, 116.82, 114.65 and 113.68.

5 Scenarios

  1. Within expectations: 23.0 to 29.0: In such a case, the yen is likely to rise within range, with a small chance of breaking higher.
  2. Above expectations: 29.1 to 33.0: An unexpected higher reading can send USD/JPY above one resistance level.
  3. Well above expectations: Above 33.0: The chances of such a scenario are very low. The pair could break two or more resistance lines on such an outcome.
  4. Below expectations: 19.0 to 22.9:  In this scenario, USD/JPY could break below one support level.
  5. Well below expectations: Below 19.0: A very weak reading would signal weakness in the manufacturing sector. In this scenario, the pair could break two or more support levels.

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

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