Yesterday was an economic heavy data day as forex traders received some very important economic information which has found its way onto forex charts around the globe. Today’s big reports were all centered on the Purchase Manager Index or PMI data. The PMI covers a wide range of economic activity as many economic reported on manufacturing as well as service sectors.
While most forex traders conduct their analysis based on technical indicators as well as price action it is important not to ignore economic reports which will have an impact on trade set-ups. Plenty of economic data only has a temporary impact, but often significant enough. New traders who ignore economic news releases often get stopped out from their trades and face unnecessary trading losses.
China started the global trip of PMI releases as it reported an unexpected contraction in its preliminary manufacturing report. The PMI dropped to 49.6 in January as reported by HSBC/Markit. A reading below 50.0 signals contraction while a reading above 50.0 is a sign of expansion. Economists expected the PMI to show a reading of 50.4, a minor slowdown from December where it expanded at 50.5.
The PMI action then shifted over to Europe where France and Germany power ahead a better than expected reading for all of the Eurozone. France reported that the PMI beat expectations of 47.5 in the manufacturing sector for January as the actual figure was 48.8 while the service sector PMI rose to 48.6 bettering expectations of 48.1. While France still points towards contraction it does so at a slower pace which reduces negativity for the Eurozone.
Germany reported a much bigger than expected expansion in its manufacturing sector where the PMI rose to 56.3 besting expectations for an increase to 54.6. The service sector in Germany as measured by the PMI came in at 53.6 which is slightly less than the 54.0 expected, but still higher than December.
This helped the Eurozone PMI Composite Index to rise to 53.2, much higher than the 52.5 expected and beating December’s 52.1. The manufacturing PMI rose to 53.9, beating expectations for an increase to 53.0 and a solid improvement over December’s 52.7. The service sector fared less optimistic with a reading of 51.9, beating expectations for a rise to 51.4 and higher than the 51.0 reported in December.
The US put a damper on the overall positive surprises as the Markit PMI for January was reported at 53.7, missing expectations for a rise to 55.0 and lower than December’s 54.4. Besides the disappointment from the US PMI data, the US also reported a set of other disappointing economic news as the Chicago Fed National Activity Index almost came to a complete standstill in December with a 0.16 reading. Economists expected a rise to 0.90 from November’s 0.69. Existing home sales as well as continued jobless claims also fared far worse than expected.
The US Dollar was punished as the EURUSD was one of the biggest benefactors as it had positive data out of the Eurozone plus negative data out of the US. Forex traders should keep an eye out on days where important economic news for both economies are releases as it amplifies the price actions moves in this currency pair.