Forex Signal (Tue October 5, 2010 10:00am EDT NY Time) US ISM Non-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 Services PMI as this release is targeting the services sectors. 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 Non-Manufacturing PMI Forecast 52.0 Previous 51.5

Trade Plan
U.S. ISM Non-Manufacturing PMI is better known as the U.S. Services PMI; the current expectation is above the 50 level at 52.0; as 50 is considered the medium point for the PMI’s, this release is considered as expansion in the services sector.

We'll be using a deviation of 3 points in order to BUY USD and 2.5 points in order to SELL USD. In the event that 55.0 is reached, we could see some USD strength and JPY weakness; however, if the opposite is true, or 49.5 figure is released, expect to see stronger EUR and possibly another strong risk aversion driven market, as at this stage a decline in future sentiment should provide reason for traders to sell USD once gain,

If our tradable releases are reached, there is a good expectation of 50 pips of market movement within the next 120 minutes on both USD/JPY and EUR/USD.

I'll be using my retracement trading method for this release, for more information on my news trading methods, please read:
Henry's News Trading Method

The Market
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. If the release is below 50, it would be considered a huge surprise, and we should expect some heavy selling in the USD.

With NFP coming up on Friday, traders will react to this release if we get a strong deviation as it is logical to expect a higher NFP release if we get a stronger PMI, or vice versa. Last ISM Non-Manufacturing PMI came out on the same day of NFP release and essentially worked against the optimism of the market and turn the trend around as strong negative surprises from a second tier news could also have a huge impact.

Additional Thoughts
Market will be paying attention this week on ISM Non-Manufacturing PMI as the majority of U.S' work force is service related. Therefore a strong release in either direction will shift the current speculation of USD.

Pre-news Considerations
There are no pre-news trades for this release.

“The Institute of Supply Management (ISM) Non-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 for US ISM Non-Manufacturing PMI


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