The breakdown of the report showed the index for production rose to 59.9 from 57.0 in July, with the employment component pushing to 60.4 from 58.6, while the gauge for new orders slipped to 53.1 from 53.5 to mark the fourth consecutive decline. However, as private sector demands remain relatively weak, with households and businesses continuing to face tightening credit conditions, firms may keep a lid on production going forward as policy makers expect to see a moderate recovery. Accordingly, the Federal Reserve is likely to maintain a dovish outlook for future policy and may support the real economy throughout the rest of the year as the effects of the fiscal stimulus fade, and the central bank may see scope to expand monetary policy further in the coming months in order to promote a sustainable recover.
ISM Manufacturing
Source: Bloomberg
USDJPY Intraday Chart
Source: Bloomberg
Following the release of the ISM manufacturing report, the USDJPY immediately pushed higher, continuing its northern journey.
USDJPY Daily Chart
Source: Bloomberg – Prepared by Michael Wright
Taking a look at the daily chart, the pair remains bounded by its descending channel, which has remained intact since June. At the same time, the 20-day moving average is forming as a clear line of resistance. Going forward, I will look to enter a long trade on a break above this moving average. Taking on a long position prior to confirmation may result in a unprofitable trade as our speculative sentiment index now stands at 5.7, and signals for additional losses.
Written by David Song and Michael Wright, Currency Analysts
To contact the authors of the report, email dsong@fxcm.com or mwright@fxcm.com
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