USD/JPY: Trading the ISM Services PMI Nov 2013

The ISM Non-Manufacturing PMI (Purchasing Managers’ Index) is based on a survey of purchasing managers, excluding the manufacturing sector. Respondents are surveyed for their view of the economy and business conditions in the US. A reading which is higher than the market forecast is bullish for the dollar.

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

Published on Tuesday at 15:00 GMT.

Indicator Background

Analysts are always interested in the views of purchase managers about the economy, as they are considered to be attuned to the latest economic and financial developments, and their expectations could be an indication of future economic trends. Thus, PMI readings are quite important and an unexpected reading could affect the movement of USD/JPY.

The index slumped in September, dropping from 58.6 to 54.4 points. This marked a three-month low, and was well short of the estimate of 57.2. The markets are expecting more of the same for the October reading, with an estimate of 54.2.

Sentiments and levels

The yen was unable to take advantage of weak US releases early in the week, and the dollar could continue to pressure the yen and push into 99 territory. The QE uncertainty which was has been weighing on the dollar should ease, as the Fed is unlikely to take any tapering action before 2014. So, the overall sentiment is bullish on USD/JPY towards this release.

Technical levels, from top to bottom: 100.85, 100, 98.90, 97.80, 96.59 and 95.

5 Scenarios

1. Within expectations: 50.0 to 58.0: In such a case, USD/JPY is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: 58.1 to 63.0: An unexpected higher reading can send the pair above one resistance line.
3. Well above expectations: Above 63.0: A sharp jump by the index could push USD/JPY upwards, and a second resistance line might be broken as a result.
4. Below expectations: 45.0 to 49.9: A reading  below the 50-point level could push USD/JPY downwards and break one level of support.
5. Well below expectations: Below 45.0: A sharp contraction by the index would likely push the pair downwards, possibly breaking a second support level.

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