USD/JPY: Trading the Philadelphia Index August 2012

The Philadelphia Fed Manufacturing Index is an important leading indicator, and is 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.

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

Published on Thursday at 14:00 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 manufacturing sector  continues to be  a sore spot in the US   economy, and the Philly Fed Manufacturing Index has   rolled out three consecutive negative readings. The forecast for  August calls for a improved reading,  up to -4.3 points.  Will the index beat the prediction and move closer to the zero level?

Sentiments and levels

Positive US data helps the US dollar, but this is countered by the ongoing European and Chinese worries, which are  bullish for  the safe haven yen. A well, there is always the possibility of intervention by the BOJ to keep  the pair’s movement in check. So, the overall sentiment  is  neutral  on USD/JPY towards this release.

Technical levels, from top to bottom: 80, 79.70, 79.10, 78.70, 77.50 and 77.

5 Scenarios

1. Within expectations: 0.0  to 8.0: In such a case, the yen is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: 8.1 to 12.0: An unexpected higher reading can send USD/JPY  above one resistance level.
3. Well above expectations: Above 12.0: 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: -4.0 to -0.1: A reading  in negative territory  could push USD/JPY downwards, and one support level could be broken as a result.
5. Well below expectations: Below -4.0: A very weak reading would signal  worsening conditions 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.