Services PMI’s Ahead: Levels to Watch

Dec 05, 5:46 pm
Retail sales US

After a long week full of economic releases last week, another week comes in with a busy start, beginning with the Italian Constitutional Amendment Vote. Today, there are a bunch of economic figures will be released during the European and the US session which set to have a notable impact on the markets, in addition, the US Jobs Report impact is likely to continue ahead of these figures. In today’s article we will explain the Services PMI data, what does it mean and how to trade the news.

Definitions:

Services PMI: This index measures the level of a diffusion index based on surveyed purchasing managers in the services industry. Above 50.0 indicates industry expansion, below indicates contraction. Released monthly, on the third business day after the month ends.

Flash vs. Final PMI

There are 2 versions of this report released about a week apart – Flash and Final. The Flash release, which the source first reported in Jun 2007, is the earliest and thus tends to have the most impact.

Why This Is Important

Survey of about 600  purchasing managers which asks respondents to rate the relative level of business conditions including employment, production, new orders, prices, supplier deliveries, and inventories.

It's positively correlated with interest rates - early in the economic cycle an increasing supply of money leads to additional spending and investment, and later in the cycle expanding money supply leads to inflation.

Expectations

Indicator

Forecast

Previous

Spanish Services PMI

55.1

54.6

Italian Services PMI

51.4

51.0

German Final Services PMI

55.0

55.0

French Final Services PMI

52.6

52.6

Euro Zone Final Services PMI

54.1

54.1

UK Services PMI

54.9

54.7

US Final Services PMI

54.9

54.7

US ISM Non-Manuf. PMI

55.3

54.8

What To Look For?

As mentioned above, the Index itself is a composite index, which includes around 5 major indicators. Sometimes traders gets confused of the currency reaction to the outcomes. Sometimes, when the index comes with a positive reading, the currency depreciate, which is confusing and vise versa. The reason behind that reaction is the major indicators and not the composite index. Investors always analyze the reason behind the positive reading of the composite index. Is it driven by higher orders, production and employment? Or due to higher inventories.

Higher new orders, production, and employment are always positive for the currency. However, if the inventories are higher, this would lead investors to take a bearish bets toward the currency as higher inventories might be caused by lower sales and lower demand. Therefore, traders need to look at each of the numbers, analyze the reason behind the positive/negative outcome before they decide on their next trade trend.

Levels To Watch (Weekly) - Majors

SymbolS3S2S1PivotR1R2R3
EUR/USD1.03691.04421.05151.05881.06611.07341.0807
USD/JPY107.23108.73110.91112.41114.59116.09118.27
GBP/USD1.21461.22271.23521.24331.25581.26391.2764
USD/CHF0.99340.99991.00671.01321.02001.02651.0333
USD/CAD1.32601.33171.34231.34801.35861.36431.3749
AUD/USD0.71610.72330.73380.74100.75150.75870.7692
NZD/USD0.68600.69140.69790.70330.70980.71520.7217

Levels To Watch (Weekly) - Crosses

SymbolS3S2S1PivotR1R2R3
EUR/GBP0.82260.83410.84130.85280.86000.87150.8787
EUR/CHF1.05931.06391.06851.07311.07771.08231.0869
EUR/JPY114.94116.09117.90119.05120.86122.01123.82
GBP/JPY132.00134.10137.59139.69143.18145.28

148.77

 
Nour Eldeen Al-Hammoury

Nour Eldeen Al-Hammoury has more than ten years of experience in focusing on foreign exchange and global economic developments, as well as central bank policies and intermarket analysis (global markets relationships). Nour Eldeen is a regular on many major TV networks (several times each) such as: BBC Radio, BBC World News, Al-Jazeera, Al-Hurra TV CNBC Europe, CNBC Asia, CNBC Arabia, Al Arabiya, Bloomberg, Russia Today, Dubai TV, Sama Dubai, Skynews Arabia, Qatar TV and Future TV News.