USD/JPY: Trading the Philadelphia Index May 2013

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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 in the Philadelphia area. 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.

The index was a disappointment in April, dropping to 1.3 points, missing the estimate of 2.7 points. The forecast for the May reading stands at 2.5 points. Will the index meet or beat this prediction?

Sentiments and levels

USD/JPY barreled past the 100 level last week, and has already flirted with the 102 line. So, we could see the upward trend continue, though probably not in the same scale as seen beforehand. A stronger dollar is supported by lots of optimism in the US: not only from the jobless claims report, but also from a report about better-than-expected tax revenue. This defers the debt-ceiling issues and also shows that the US economy is doing well. In Japan, the GDP report will probably show that the government’s aggressive easing policies are working, and this could encourage the BOJ to provide more monetary stimulus, to gain a win also on deflation. So, the overall sentiment is bullish on USD/JPY towards this release.

Technical levels, from top to bottom: 103.50, 102.60, 102, 101.44, 100 and 98.90.

5 Scenarios

  1. Within expectations: 0.0 to 6.0: In such a case, the yen is likely to rise within range, with a small chance of breaking higher.
  2. Above expectations: 6.1 to 9.0: An unexpected higher reading can send USD/JPY above one resistance level.
  3. Well above expectations: Above 9.0: The chances of such a scenario are low. The pair could break two or more resistance lines on such an outcome.
  4. Below expectations: -3.0 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 -3.0: 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.

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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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