In a few days we will have a sneak peek at the manufacturing activity in the US, which is a leading economic indicator of the first order!
Will it soften the numbers or fuel recession fears in the US?
Here are some points you need to know if you are planning to trade in the event:
Focus on the event:
US Flash Manufacturing PMIs for June 2023
Purchasing Managers Index (PMI) It comes from a survey conducted among a few hundred purchasing managers in key business sectors, such as manufacturing and services.
read index for 50.0 and above It hints at optimism and industry expansionwhile reading 49.9 and below Indicates pessimism and possible industry contraction.
This is often seen as a leading signal to higher economic indicators, most notably inflation and employment measures, and therefore tends to attract notable market reactions.
When will it be released:
Standard & Poor’s Final Manufacturing PMI – July 3, 2023 (Monday), 1:45 PM GMT
ISM Manufacturing PMI – July 3, 2023 (Monday), 2:00 PM GMT
Use our forex market hours tool to convert GMT to your local time zone.
Expectations:
S&P Final Manufacturing PMI: 46.3 expected vs. 48.4 prior
ISM Manufacturing PMI: 49.0 expected vs. 46.9 prior
Previous issues and the impact of the risk environment on the US dollar
June 1, 2023
Overlay chart of the US dollar against major currencies on TV Planned by TV
Event Results/Price Action: The ISM manufacturing PMI slowed from 47.1 to 46.9 in May as lower demand and increased business uncertainty helped put the sector into a faster rate of contraction. Meanwhile, the S&P manufacturing PMI was revised slightly lower from 48.5 to 48.4.
The numbers mattered little to USD traders, who were more focused on the US passing a bipartisan bill to suspend the US debt ceiling and the Fed possibly “skipping” a rate hike in June.
The combination of risk taking and a repricing of the Fed’s policy direction sent the greenback lower across the board and to intraday lows as the currency closed out the day.
Risk Environment and Internal Market Behaviors: Debt ceiling and global growth concerns dominated the markets early that week. The waves turned midweek, thanks to “skip June” talks from Fed members and optimism about the passage of the debt ceiling bill.
The repricing of Fed rate hike expectations caused dollar longs to drop and a general move towards riskier assets until Friday’s strong US non-farm payrolls report encouraged some profit-taking.
May 1, 2023
Overlay of the USD graph against the major components of the TV Planned by TV
Event Results/Price Action: April PMIs came in mixed, with the final S&P manufacturing PMI reading revised lower from 50.4 to 50.2 while the ISM manufacturing PMI improved from 46.3 to 47.1. The details of the ISM report also showed increases in prices and employment activity, which may have contributed to the Fed’s hawkish outlook.
The greenback had already received a boost from JP Morgan’s acquisition of troubled First Republic Bank, but a better-than-expected ISM reading helped propel the currency to new intraday highs against its major peers.
Risk Environment and Internal Market Behaviors: Manufacturing PMIs came out on Monday so there wasn’t a lot of fresh market ideas to compete with the immediate reaction to the releases.
At the time, the news of the acquisition of JP Morgan and US Senator Manchin to the markets that the US would not default on its debt helped improve dollar demand and risk in general.
Price action odds:
Possibilities of feeling risky: The risk-friendly reaction this week to upbeat US data releases and continued hawkish comments from central banks suggests that, as with the June release, traders are less concerned about global growth, especially in the US.
Positive risk sentiment on Monday may continue to skew those topics, but that could change quickly during the London session as China and Europe will release business sentiment survey updates ahead of US manufacturing PMI events. What are those in relation to the direction of risk sentiment, and as hints of what we may see in the US updates.
US dollar scenarios:
Possible base scenario: As in the May 1 issue, Manufacturing PMIs will be printed on Monday. This means that we have a better chance of seeing a more direct correlation between the PMI results and the reaction of the USD price.
If the PMIs post weaker monthly readings as markets expect and with the release of the preliminary S&P Manufacturing PMI, concerns about Uncle Sam’s growth could push the US dollar against its peers such as the Japanese yen and the Swiss franc. Remember to take profits during the trading session, as new market themes can change the direction of the demand for USD.
Possible alternative scenario: If manufacturing activity turns out to be stronger than traders expect in June, the dollar could rally briefly against the majors as it plays into the idea that the Fed could remain hawkish for a while longer.
Depending on the degree of bullish surprise and prevailing safe-haven demand, the US dollar could see gains against its peers such as the Euro, Australian and New Zealand dollars, especially if Chinese or European PMI results are weaker than expected earlier in the session.