The MOST Important PMI Data For Forex Traders
U.S. ISM Manufacturing Purchasing Managers Index (PMI)
Why is the ISM PMI so important? One of the reasons why is because it covers 400 industrial companies across the US, the largest economy in the world.
The ISM PMI is released on the first business day of each month. The data involves results from a survey from the industrial companies relating to their business activity in the previous months.
The PMI is a composite index of the five areas below:
New Orders 30%
Production 25%
Employment 20%
Supplier Deliveries 15%
Inventories 10%.
This report is important because it represents 20% of business contribution to GDP in the US, reflecting goods bought and sold in the economy. The data is robust as it goes as far back as 1947 so it can be historically stress tested. The historical correlation between real GDP growth data and ISM manufacturing data is 85% making it considerably reliable.
How do traders use the ISM PMI?
What we care about as traders is the overall view of the currency themselves, we don’t care about the inside detail released in the scheduled releases. The overall composite number of the PMI, the direction of the ISM and the magnitude of the ISM from a month to month basis are the most important factors we need to consider when analysing this news. After we’ve analysed the ISM manufacturing PMI we can creates scores of the composite weighting to grasp an overall bias of which direction the economy is going.
Generally releases that are greater than forecast and previous data shows that the manufacturers are more confident and are confident of future business. Thus an increase in demand for the dollar. However, readings that start to fall below forecast and previous data could show how there is less confidence and less growth in the economy. Thus a decrease in demand for the dollar.
Forex traders should always be using multiple pieces of economic data to support their analysis. These are the true drivers of economic strength and therefore the value of a currency. The Logic Strategy compiles over 500 pieces of economic news through artificial intelligence and machine learning algorithms to come up with a solid conclusion on which way an economy is headed. Similar technology is used in Investment banks, hedge funds and pension funds.
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