USD/JPY – Trading the US ISM Manufacturing PMI

ISM Manufacturing PMI (Purchasing Managers’ Index) is based on a survey of purchasing managers in 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.

Update: ISM Manufacturing PMI jumps to 59 points – USD stronger

Update: The final manufacturing PMI by Markit was revised from 58 to 57.9 points. This is a warm-up for the real thing.

Published on Tuesday at 14:00 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 releases are considered market-movers and an unexpected release could affect the movement of USD/JPY.

As the US continues to post strong numbers, there is optimism about the health of the manufacturing sector. The ISM Manufacturing PMI rose to 57.1 points last month, marking an 8-month high. This  beat the estimate of 56.1 points. More of the same is expected in the upcoming release, with the estimate standing at 56.0 points.

Sentiments and levels

There is a clear discrepancy between the current monetary stances of the Federal Reserve and the BOJ. Japanese numbers are worsening and the BOJ may have to add further stimulus. In the US, QE is scheduled to wrap up in October and speculation about a rate hike will heat up. On the other hand, the geopolitical risks are not fully represented and the yen could post gains. We could see some choppy trading ending with the pair maintaining its high ground. So, the overall sentiment is neutral on USD/JPY towards this release.

Technical levels, from top to bottom: 105.44, 104.92, 104.25, 103, 102.70 and 102.30.

5 Scenarios

  1. Within expectations: 54.0 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 61.0: An unexpected higher reading can send the pair well above one resistance line.
  3. Well above expectations: Above 61.0: A sharp expansion in the manufacturing sector could push USD/JPY upwards, and a second resistance line might be broken as a result.
  4. Below expectations: 61.1 to 64.0: A weak reading could push USD/JPY downwards and break below one level of support.
  5. Well below expectations: Below 54.0: A sharp contraction would indicate deep weakness in the manufacturing sector. This would likely push the pair downwards, possibly breaking a second support level.

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

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