Forex Signal (Fri May 2 2011, 10:00am NY Time EST) – US ISM Manufacturing PMI

ISM or Institute for Supply Management is releasing its PMI (Purchasing Manager Index) today. 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 59.9 Previous 61.2
ACTION: 62.4 BUY USDJPY / 57.4 BUY EURUSD

The Trade Plan
We’ll be looking for around 2.5 points of deviation for this trade. If a 62.4 or better number is released, we could see some USD strength and JPY weakness, therefore a BUY on the USD/JPY. If the opposite is true, or 57.4 figure is released, expect to see weaker USD in the short term, therefore we should BUY EURUSD (or GBPUSD).

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.

For more information on my trading methods, please read:
Henry Liu’s Trading Method

The Market
Business surveys indicate that the need to hire is growing, especially in the manufacturing sector. US export growth will report a healthy output in the last month as investment spending budgets are increasing.

The ISM Manufacturing index is still in need of foreign support but the rate of contraction has slowed down steadily for US businesses. High energy costs seem to be dropping the ISM index about 2 points from last months marker at 61.2 . Forecasters expect a report of 59.9 for the April ISM Manufacturing PMI.

And of course, as the first significant U.S. economic indicator for April, the market may react with a bit more exaggeration, therefore it is probably the best to wait until after this release before jumping into the market, even if you don’t plan to trade it…

Additional Thought
With the possibility of USD mounting a strong comeback, this is the first real data that would provide insight towards the NFP on Monday, therefore on a strong surprise, market may move strongly…

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

DEFINITION
“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 and Data for US ISM Manufacturing PMI

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