USD/JPY: Trading the Philadelphia Index May 2014

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 and is an important gauge of activity in the manufacturing sector, which is a vital component of the economy.

The index has looked impressive, climbing sharply since a reading below zero back in January. The March reading came in at 16.6 points, crushing the estimate of 9.6. The estimate for the upcoming release is lower, with an estimate of 13.9. Will the index repeat and beat the prediction?

Sentiments and levels

The US dollar lost a lot of  ground to the yen in April, but the pair has stabilized close to the 102 line.  In Japan, monetary policy is probably going to remain unchanged, even if there still is a chance for more stimulus. After the big falls we have seen of late, the pair could stabilize. The “sell USD” attitude could change now, especially if US employment numbers continue to improve. So, the overall sentiment is bullish on USD/JPY towards this release.

Technical levels, from top to bottom: 103.77, 102.74, 102, 101.20, 100.75, and 100.

5 Scenarios

1. Within expectations: 11.0 to 17.0: In such a case, the yen is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: 17.1 to 20.0: An unexpected higher reading can send USD/JPY above one resistance level.
3. Well above expectations: Above 20.1: The chances of such a scenario are very low. The pair could break a second resistance line on such an outcome.
4. Below expectations: 8.0 to 10.9: A weak reading could push USD/JPY downwards, and one support level could be broken as a result.
5. Well below expectations: Below 8.0: A sharp drop in the index would signal worsening conditions in the manufacturing sector. In this scenario, the pair could break below a second support level.

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

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