EUR/USD: Trading the US Manufacturing PMI

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The US Manufacturing PMI (Purchasing Managers’ Index) is an important leading indicator which focuses on the health of the manufacturing sector. A reading which is higher than the estimate is bullish for the US dollar.

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

Published on Thursday at 15:00 GMT.

Indicator Background

US Manufacturing PMI is based on a comprehensive survey of purchasing managers in the manufacturing sector, who are interviewed about their activity level and current expectations as to how the economy will perform. A reading above 50 indicates that manufacturing sector is growing, while figures below 50 signify economic contraction.

The index continues to improve and hit 57.3 points in October, easily beating the estimate of 55.2. This strong reading was up from 56.4 a month earlier. The markets are expecting a slight drop in December, with the estimate standing at 56.8 points.

 

Sentiment and technical levels

We have experienced some volatility from the pair due to low liquidity over the holiday period. On Friday, the euro jumped close to the 1.39 line before retracting. We could see some similar movement this week as well. In the longer run, the direction of the pair is likely lower, as we could see the ECB ease policy soon in order to boost growth and inflation. Tightening financial conditions could be the trigger. In the US, the recent strong data supports further tapers, after the Fed finally pressed the taper trigger in December. So, the overall sentiment is bearish on EUR/USD towards this release.

Technical levels, from top to bottom: 1.4036, 1.4000, 1.3832, 1.3710, 1.3615 and 1.3440.

5 Scenarios

  1. Within expectations: 54.0 to 60.0 points: In this case, EUR/USD may fluctuate slightly within range, with a small chance of breaking higher.
  2. Above expectations: 60.1 to 64.0 points: A better reading than forecast could see the pair drop below one support level.
  3. Well above expectations: Above 64.0 points: The chances of such an outcome are low. Such a scenario would push down the EUR/USD, and a second support level might be broken as a result.
  4. Below expectations: 50.0 to 53.9 points: A weak reading would be bullish for the euro which could break one resistance level.
  5. Well below expectations: Below 50.0 points: A reading indicating contraction is not likely, given recent releases. In such a case, EUR/USD could break above a second resistance line.

To follow this event live:   [do action=”calendar-event” eventid=”2e1d69f3-8273-4096-b01b-8d2034d4fade”/]

 

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About Author

Kenny Fisher - Senior Writer A native of Toronto, Canada, Kenneth worked for seven years in the marketing and trading departments at Bendix, a foreign exchange company in Toronto. Kenneth is also a lawyer, and has extensive experience as an editor and writer.

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