USD/JPY: Trading the ISM Services PMI Feb 2014

The ISM Non-Manufacturing PMI (Purchasing Manager Index) is based on a survey of purchasing managers active in the services sector of the economy. Respondents are surveyed for their view of the economy and business conditions in the US. A reading that is higher than the estimate is bullish for the US dollar.

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

Published on Wednesday at 15:00 GMT.

Indicator Background

Market analysts are always interested in the views of purchase managers on the economy, as the latter are considered to be attuned to the latest economic and financial developments, and their expectations could be an indication of the health of the economy. An unexpected reading from the index could affect the movement of USD/JPY.

ISM Non-Manufacturing PMI has lost ground in the past two releases, missing the estimate each time. In December, the reading of 53.0 was the index’s lowest level in six months. The estimate for the January release stands at 53.6 points. Will the index beat this prediction?

Sentiments and levels

Last week, the Federal Reserve tapered QE for the second time in two months and this reduction was an important vote of confidence in the US economy. Meanwhile, the Bank of Japan is moving full steam ahead with its current aggressive monetary program, which cost the yen close to 20% of its value in 2013. Thus, the overall sentiment is bullish on USD/JPY towards this release.

Technical levels, from top to bottom: 104.65, 104, 102.50, 101.44, 100.85 and 100.

5 Scenarios

1. Within expectations: 51.6 to 55.6: In such a case, USD/JPY is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: 55.7 to 58.7: An unexpected higher reading can send the pair above one resistance line.
3. Well above expectations: Above 58.7: The chances of a sharp expansion are low. Such an outcome would likely prop up USD/JPY, and a second resistance line might be broken as a result.
4. Below expectations: 48.5 to 51.5: A sharper decrease than forecast could cause the pair to lose one level of support.
5. Well below expectations: Below 48.5: In this outcome, USD/JPY would likely drop, possibly breaking below a second support level.

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

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