Forex Signal (Mon November 1 2010, 10:00am NY Time EDT) - US ISM Manufacturing PMI

Henry Liu

Former FPA Special Consultant
ISM or Institute for Supply Management is releasing its PMI (Purchasing Manager Index) and it is similar to the UK Manufacturing PMI as this release is targeting the Manufacturing sector. As a leading indicator, traders generally pay attention to this report for hints of economic trend. Here’s the forecast:

10:00am NY Time US ISM Manufacturing PMI Forecast 54.2 Previous 54.4

The Trade Plan

We’ll be looking for around 2.5 points of deviation for this trade. If a 57.0 or better number is released, we could see some USD strength and JPY weakness, thererefore a BUY on the USD/JPY. If the opposite is true, or 51.5 figure is released, expect to see weaker USD in the short term, therefore we should BUY GBPUSD (or EURUSD).

If our tradable releases are reached, there is a good expectation of 50 pips of market movement within the next 60 minutes on USD/JPY or EURUSD. I’ll also be looking to trade other JPY crosses as they may all exhibit similar movements using my Retracement Trading Method.
Henry's News Trading Method

The Market
U.S. ISM Manufacturing PMI current expectation is above the 50 level at 54.2, as 50 is considered the medium point for the PMI’s, this release is considered as expansion in the manufacturing sector. ISM PMI’s are leading indicator as stated before, and usually they do not affect the long-term trend of the market, unless we get a huge surprise. However, in a week such as this week, with NFP scheduled on Friday, PMI's usually would have more market impact.

With 64 economists surveyed by Bloomberg agreeing to the 54.2 figure, which is pretty much unchanged from last month's 54.4 release, there is little expectation to change the long term trend of the market, nor the alarming unemployment figure. I'd warn to use the same caution when trading this risk event as you would with others.

Additional Thought
Since NY traders will be waiting for this release to be out of the way before committing to a position, volatility may be high but there is no way to predict the direction… Therefore unless we get our tradable release, we should stay out…

With that being said, if we get a blockbuster release, market could be leaning towards a stronger NFP on Friday, therefore we may see a bit more exaggerated market.

Pre-news Consideration
Since PMI's are not trend changing releases, there should be no overwhelming sentiment prior to the release.

“The Institute of Supply Management (ISM) Manufacturing Index measures the activity level of purchasing managers in the services sector, with a reading above 50 indicating expansion. A rising trend has a positive effect on the nation’s currency. To produce the index, purchasing managers are surveyed on a number of subjects including employment, production, new orders, supplier deliveries, and inventories. Traders watch these surveys closely because purchasing managers, by virtue of their jobs, have early access to data about their company’s performance, which can be a leading indicator of overall economic performance.”

Historical Chart & Data US ISM Manufacturing PMI


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To Henry Liu,

I think it would have been better to sell Euro/Usd on this ..
Do you agree that is a valid assessment?


Adam Wyn-Roberts (still a fan)