USD/JPY: Trading the Philly Fed Manufacturing Index November 2012

The Philadelphia Fed Manufacturing Index is an important leading indicator, and is based on a survey of manufacturers in the Pennsylvania and New Jersey region. 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 15:00 GMT.

Indicator Background

The Philadelphia Fed Manufacturing Index  is an important indicator of  regional  economic growth. The manufacturing sector is a vital component of the economy and the index provides a useful reading for determining whether the economy is in a growth or contraction phase.

The October release was very strong, at 5.7 points. This easily beat the estimate of 1.3. The markets are expecting a much lower reading this month, with a forecast of 1.1. Will the index surprise the markets with another strong reading?

Sentiments and levels

The breakdown below the uptrend channel, the safe haven flows after Obama’s re-election and the debt crisis in Europe support more drops by USD/JPY. On the other hand, hopes for some can-kicking around Greece, and some consolidation could balance the moves and  push the  pair upwards. So, the overall sentiment is neutral on USD/JPY towards this release.

Technical levels, from top to bottom: 81.80, 81.43, 80.60, 80, 79.70  and 79.05.

5 Scenarios

1. Within expectations:  -3.0 to 5.0: In such a case, the yen is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: 5.1 to 9.0: A strong  reading can send USD/JPY above one resistance level.
3. Well above expectations: Above 9.0: The chances of such a scenario are low. The pair could break two or more resistance lines on such an outcome.
4. Below expectations: -7.0 to -3.1: A very weak reading would likely push USD/JPY downwards, and one support level could be broken as a result.
5. Well below expectations: Below -7.0: A reading deep in negative territory would signal worsening conditions in the manufacturing sector. In this scenario, the pair could break two or more support levels.

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