EUR/USD: Trading the Philadelphia Index September 14 2011

The Philadelphia Fed Index is one of three key manufacturing reports coming out this week, as we head into Q4. The manufacturing sector is an important component of the economy and the index provides a useful reading for determining whether the economy is in a growth or contraction phase. An actual reading which exceeds the forecast bodes well for the US dollar.

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

Published on Thursday at 14:00 GMT.

Indicator Background

The Philadelphia Fed Index is a leading indicator which measures regional manufacturing growth. It is based on a survey of manufacturers’ opinions of business activity, and as such provides a snapshot of the business climate in the US.

The index came out at an alarming -30.7 in August, the lowest reading recorded since March 2009. The forecast for September points to further contraction, with a reading of -14.4. Such poor numbers are sure to keep investors and traders nervous about the US economy.

Sentiments and levels

The US economy may be in trouble, but the Euro Zone looks even worse. Economic growth is stagnant, and the Greek debt crisis, which seems to be worsening by the day, is weighing heavily on the Euro. So, the overall sentiment is bearish on EUR/USD towards this release.

Technical levels, from top to bottom: 1.3950, 1.3838, 1.3750, 1.3710, 1.3620, 1.3570 and 1.3510.

5 Scenarios

1. Within expectations: -20.0 to -8.0: In such a case, the Euro is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: -7.9 to 2.2: An unexpected higher reading can send EUR/USD well below one support level.
3. Well above expectations: Above 2.2: The chances of such a scenario are very low. A second support line might be broken on such an outcome.
4. Below expectations: -20.1 to -30.0: A greater decrease than forecast would help push EUR/USD upwards, and one resistance level could be broken.
5. Well below expectations: Below -30.0: Given the previous month’s release of -30, such an outcome cannot be ruled out. In this scenario, the pair could break two resistance levels.

For more on the Euro, see the Euro to dollar   forecast.