ISM PMI Indicates Contraction

ISM PMI Indicates Contraction

What will happen?

The US Institute for Supply Management will release ISM manufacturing PMI on July 1, 17:00 GMT+3. It’s a leading indicator of economic health because businesses react quickly to market conditions. Purchasing managers hold, perhaps, the most current and relevant insight into companies’ views of the economy. Around 300 purchasing managers take part in the survey. They assess business conditions, including employment, production, new orders, prices, etc. 

Why is it important?

It’s no secret that the economy is damaged by inflation, rising rates, supply issues, and geopolitics. Thus, there’s a high chance of the ISM PMI decrease. Moreover, the index may enter the contraction zone (fall below 50.0) and press even more on the USD and stocks. If purchasing managers consider the economy weak, the broad market should also be worried.

Last time, the result was higher than expected (56.1 Actual vs 54.4 Forecast). The reading caused volatile moves in EURUSD because the market didn’t expect the index to rise. Minutes after the release, the USD plunged by 800 points. A one-lot sell trade at the moment of the release would have brought a profit of $800.

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How to trade on ISM manufacturing PMI?

Compare the actual results with the expectations. The market will probably expect numbers above 50.0. Thus, if the reading is lower than 50.0, the USD will be under heavy pressure.

  • If the actual numbers exceed expectations – the USD will move sideways
  • Otherwise – the USD will fall.

 Check the Economic Calendar.

Instruments to trade: EURUSD, GBPUSD, USDJPY.

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