USD/JPY: Trading the ISM Services PMI Dec 2014

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.

Update: ISM Non-Manufacturing PMI jumps to 59.3 points – USD rises

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

Published on Wednesday 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 continues to point to expansion, but slipped in October to 57.1 points, a four-month low. This was short of the estimate of 58.2 points. A slight improvement is expected in the upcoming reading, with the estimate standing at 57.5 points.

Sentiments and levels

Despite weak numbers last week, the US remains on track for a rate hike in 2015. Over in Japan, monetary stance is headed in the opposite direction, as the BOJ increased stimulus in October. With the Japanese economy in recession, there is further room for the yen to fall, as the psychologically important level of 120 looms closer. So, the overall sentiment is bullish on USD/JPY towards this release.

Technical levels, from top to bottom: 122.19, 121.39, 119.88, 117.94, 116.82 and 114.65.

5 Scenarios

1. Within expectations: 54.0 to 61.0: In such a case, USD/JPY is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: 61.1 to 65.0: An unexpected higher reading can send the pair above one resistance line.
3. Well above expectations: Above 65.0: 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: 50.0 to 53.9: A weak reading could push USD/JPY downwards and break one level of support.
5. Well below expectations: Below 50.0: A reading below 50 would indicate contraction. This would likely push the pair downwards, possibly breaking a second support level.

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