EUR/USD: Trading the Philadelphia Fed Index May 16 2012

The Philadelphia Fed Manufacturing Index is an important leading indicator, and is based on a survey of manufacturers in the Philadelphia area. It  examines manufacturers’ opinions of business activity, and helps provides a snapshot of the business climate and sentiment in the US.  A reading which  is higher than  the  market  forecast is bullish for the 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 Manufacturing Index measures regional manufacturing growth in the Philadelphia area. The manufacturing sector is a vital component of the economy and the index provides a useful reading for  measuring the health and direction of the economy.

The  index slumped to 8.5  points in April, its lowest reading since  January. The markets are forecasting a  better reading in May, with an estimate of 10.6. Will the index rebound and meet or beat this month’s forecast?

Sentiments and levels

The  political impasse in Greece is likely to lead to new elections (yet again), and parties that are against the bailout package  could become part of a coalition government. There is open talk of Greece exiting from the Euro-zone, and dumping the euro. As well, the economy is improving in the US, in sharp contrast to the recession spreading across Europe. So, the overall sentiment  is bearish  on EUR/USD towards this release.

Technical levels, from top to bottom:  1.29, 1.2873, 1.2760, 1.2660, 1.2623  and 1.2587.

5 Scenarios

1. Within expectations:  7.0 to 14.0: In such a case,  EUR/USD is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: 14.1 to 17.5: An unexpected higher reading can send EUR/USD  below one support  level.
3. Well above expectations: Above 17.5: The chances of such a scenario are low.  Such a reading would help the dollar, and the pair could break two or more support levels.
4. Below expectations: 3.4 to 6.9: A weak reading than forecast could push EUR/USD upwards, breaking one resistance line.
5. Well below expectations: Below 3.4: A  very poor reading  would signal  worsening conditions in  the manufacturing sector. In this scenario, the pair could  push above  two or more  resistance lines.

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