EUR/USD: Trading the Philadelphia Index December 14 2011

The Philadelphia Fed Index is an important leading indicator, based on a survey of manufacturers in the Philadelphia area. It is based on a survey of manufacturers’ opinions of business activity, and as such provides a snapshot of the business climate and sentiment in the US.

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

Published on Thursday at 15:00 GMT.

Indicator Background

The Philadelphia Fed Index measures regional manufacturing 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. An reading which exceeds the forecast is bullish for the dollar.

After registering an 8.7 reading in October, the index was down in November to 3.6, still in positive territory. The forecast for Decmber is 5.1, which would  signal modest economic growth.

Sentiments and levels

The EU summit  failed to take any  drastic action on the debt crisis, and while the recent interest cuts are welcome, they will not solve the crisis. With the US economy showing signs of recovery,  the overall sentiment is  bearish on EUR/USD towards this release.

Technical levels, from top to bottom: 133.80, 1.3280, 1.3212, 1.3145, 1.3080, 1.30 and 1.2873.

5 Scenarios

1. Within expectations: 1.0 to 9.0: In such a case,  EUR/USD is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: 9.1.0 to 13.0: An unexpected higher reading can send EUR/USD below one  support level.
3. Well above expectations: Above 13.0: The chances of such a scenario are low. A second  support level  might be broken on such an outcome.
4. Below expectations:  -3.0 to 0.9: A reading  close to or in  negative territory  would push EUR/USD downwards, and  one resistance level could be broken.
5. Well below expectations: Below -3.0: A reading in deep negative territory would signal a contraction in the manufacturing sector. In this scenario, the pair could break two  resistance levels.

For more on the Euro, see the EUR/USD forecast.