USD/JPY: Trading the Philadelphia Index January 2013


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 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 manufacturing is in a growth or contraction phase.

After an awful release in November, the index bounced back last month, with an excellent reading of 8.1 points. This easily beat the forecast of -2.2. The estimate for January stands at 7.1 points. Will the index again surprise the markets will a strong reading?

Sentiments and levels

The new Japanese government has not wasted any time in implementing its aggressive economic agenda – the stimulus program has been approved, the BOJ will likely tow the government line, and the yen has been weakening. However, and despite the moral currency war, some external pressure could weigh on Japan: the policy of “beggar thy neighbor” has its limits. In addition, some business leaders and a senior cabinet minister have questioned whether the weakening should continue. After the big surge by the dollar, we could see a pullback at the critical 90 level, and a significant correction. So, the overall sentiment is bearish on USD/JPY towards this release.

Technical levels, from top to bottom: 90, 89.10, 88.40, 87.60, 86.27 and 85.50.

5 Scenarios

  1. Within expectations: 4.0 to 10.0: In such a case, the yen is likely to rise within range, with a small chance of breaking higher.
  2. Above expectations: 10.1 to 13.0: An unexpected higher reading can send USD/JPY above one resistance level.
  3. Well above expectations: Above 13.0: The chances of such a scenario are low. The pair could break two or more resistance lines on such an outcome.
  4. Below expectations: 1.0 to 3.9: A weak reading could push USD/JPY downwards, and one support level could be broken as a result.
  5. Well below expectations: Below 1.0: A reading close to zero or in negative territory 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.

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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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