NEW YORK (Forex News Now) – The Tempe-based Institute for Supply Management or ISM released its latest Manufacturing Purchasing Managers’ Index or PMI survey for December, 2010 on the morning of January 3rd, 2011 at 10:00am EST.
The Institute’s report showed that its closely watched ISM Manufacturing PMI diffusion index had improved to 57.0 in its December survey period from the 56.6 level seen the previous month, according to online forex news sources.
This represents the highest level for the index since June 2010 when it printed at the 59.7 level. Prior to that, the index peaked at the 60.4 level in May 2010, which was then the highest level it had achieved since August 2004.
Forex Market Impact of the ISM Manufacturing PMI
This second consecutive gain for the index was in line with the market’s consensus expectations of 57. Accordingly, it should have had relatively little initial impact on exchange rates.
Nevertheless, EUR/USD declined from 1.3365 to 1.3305 immediately before the number and then rose even higher afterwards to peak at 1.3394 in European holiday thinned trading.
Intraday analysis indicates this probably reflected some conservative position squaring ahead of the key data release, followed by the reestablishment of EUR/USD longs once the number came out.
Significance of the ISM Manufacturing PMI Economic Data Release
The primary reason for the strong interest in the ISM Manufacturing PMI is that it acts as a good leading indicator of U.S. economic strength. Basically, purchasing managers at businesses are usually in touch with their company’s current view of the economy that can result in shifts in production, employment and other factors that affect the U.S. economy at its most fundamental level.
The ISM Manufacturing PMI is comprised of responses given by approximately 400 manufacturing based purchasing mangers about their view on current business conditions. The questions asked include key subjects such as: employment, new orders, production, inventories, prices and deliveries from suppliers.
Economists and fundamental analysts interested in currency market trading review this important sentiment index when it typically comes out on the first business day following the survey month. When the ISM Manufacturing PMI number precedes the key Non Farm Payrolls, it tends to have more of a market impact when it differs from consensus expectations.
Levels for this number above 50 indicate expansion in the industrial sector, while levels under 50 indicate contraction. Also, a rising trend in the index tends to have a positive effect on the U.S. Dollar.