Forex Review: This Week’s PMI Reports

As I mentioned in my NFP week cheat sheet, purchasing managers’ index (PMI) reports measure the overall business conditions in the industry. A reading above 50.0 signals industry expansion while a reading of 49.9 and below usually hints at industry contraction.

Let’s break down the major purchasing managers’ index reports this week and see how they have affected their respective currencies.

1. Japanese manufacturing PMI

Manufacturing companies in Japan took a hit in April after the implementation of Abe’s sales-tax hike. The index fell to its 14-month low of 49.4, its first contraction since December 2012. The index was at 53.9 in March.

USD/JPY had dropped by 30 pips while EUR/JPY and GBP/JPY fell by 50 pips in the first three hours after the report’s release. Of course, a worse-than-expected industrial production report (released at the same time as the PMI data) could have also motivated the yen bulls into thinking that there would be more stimulus from the BOJ.

2. Australia’s AIG manufacturing PMI

The Australian Industry Group’s (AIG) PMI dropped from 47.9 to 44.8 in April, its fastest contraction since mid-2013, as the Aussie’s recent strength held back recovery for the exporters. The Aussie bulls and bears mostly shrugged off the report though, and concentrated instead on China’s manufacturing data.

3. Chinese manufacturing PMI

China’s PMI came in at 50.4, right in between March’s 50.3 reading and the expected 50.5 figure. Asia session traders were initially happy with the results and pushed the Aussie by around 20 pips across the board.

The good vibes didn’t last long, as London session traders paid more attention to iron ore’s significant intraday losses. By the end of the day the Aussie erased its Asia session gains, capping the day in the red.

4. UK manufacturing and construction PMI

The U.K.’s manufacturing PMI rose from 55.8 in March to a five-month high of 57.3 in April as output from British factories almost rocketed to its 20-year high. Not surprisingly, pound bulls were all over the positive report. Cable finally broke above its 1.6840 resistance levels and reached 1.6900 throughout the day. The pound also ended the day in the green against the euro, yen, and the Aussie. What a coup!

The pound didn’t have as much luck with the construction PMI after it fell from 62.5 in March to a six-month low (60.8) in April. Analysts had expected at least a 62.2 reading. Cable made a run for its new intraday lows, but so far the selloff is muted as traders await the big NFP report.

5. US ISM manufacturing PMI

The Institute for Supply Management (ISM) manufacturing PMI expanded for the 11th consecutive month, as it popped from 53.7 to a four-month high of 54.9 in April. Market players had expected a reading of 54.3. Still, word on the streets is that some manufacturers are still concerned over the lack of overseas demand. This is probably why the Greenback only gained around 20 pips on the euro, yen, and the franc.

There you have it, folks! I hope this summary would make it easier for you to assess the PMIs’ potential effects on the major currencies and help you with your future news trades!