How Forex News Traders Use ISM Numbers.
by Gregory McLeod.
The Institute for Supply Management (ISM) was founded in 1915 and is the first supply management institute in the world. Servicing 40,000 business professionals in more than 90 countries, ISM focuses on supply chain management. Forex traders rely heavily on ISM’s release their Purchasing Managers Index (PMI) on the first business day of each month to gauge economic growth.
A country’s economy is as strong as its supply chain. The Institute for Supply Management (ISM) measures the economic activity from both the manufacturing side as well as the service side. Formed in 1915, ISM is the first management institute in the world with over 40,000 members in 90 countries. Since it can draw from information gathered from the surveying its large membership of purchasing managers, the ISM economic news releases are carefully watched by Forex traders around the world as a reliable guide to economic activity.
ISM publishes three surveys; manufacturing, construction, and services. Published on the first business day of the month, the ISM Purchasing Managers Index (PMI) is compiled from surveys of 400 manufacturing purchasing managers. These purchasing managers from different sectors represent five different fields; inventories and employment, speed of supplier deliveries, production level, and new orders from customers.
In addition, ISM construction PMI is released on the second business day of the month, followed by services on the third business day. Forex traders will look to these releases to determine the risks at any given time in the market.
Forex Market Impact.
The Manufacturing and Non-manufacturing PMI’s are big market movers. When these reports come out at 10:30 AM ET, currencies can become very volatile. Since these economic releases are based on the previous month’s historical data gathered directly from industry professionals, Forex traders can determine if the US economy is expanding or contracting.
Forex traders will compare the previous month’s number with the forecasted number that economists have published. If the released PMI number is better than the previous number and higher than the forecasted number, the US dollar tends to rally. This is where fundamental and technical analysis comes together to create a trade setup.
Learn Forex: EURUSD Drop on Better.
(Created by Gregory McLeod)
In the example above, notice how the better than expected PMI number triggered a US dollar rally against the Euro. As seen in the chart above of the EURUSD, the ISM Non-Manufacturing was not only above 50 but at 55.4, beat the forecasts calling for a drop from 54.4 to 54.0.
When an economic release beats expectations, like in the example above, sharp fast moves can result. In this case, EURUSD dropped 22 pips in 15 minutes. Traders often choose the Euro as the “anti-dollar” to take advantage of capital flows between two of the largest economies.
The Euro zone has a large liquid capital markets which can absorb the huge waves of capital seeking refuge from the U. S. So a weak US ISM Non-Manufacturing number usually leads to a dollar sell-off and a rise in the Euro. Another scenario is when the number released is in line with forecasts and/or unchanged from the previous month, then the US dollar may not react at all to the number.
Overall, an ISM PMI number above 50 indicates that the economy is expanding and is healthy. However, a number below 50 indicates that the economy is weak and contracting. This number is so important that if the PMI is below 50 for two consecutive months, an economy is considered in recession.
PMI’s are also compiled for Euro zone countries by the Markit Group while US regional and national PMIs are compiled by ISM. As you can see, traders have good reason to pay special attention to the important releases from the Institute of Supply Management.
---Written by Gregory McLeod Trading Instructor.
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Non-Manufacturing ISM Report On Business.
This text aims to take a brief look at the ISM’s non-manufacturing PMI. We have analyzed the older manufacturing PMI in a much more detailed way in its relevant article, and those who would like to study this report in greater detail can peruse that manufacturing PMI article at their convenience. In this article we’ll only examine the issues specifically related to the non-manufacturing release. The non-manufacturing report is released on the third business day of each month at around 10 am EST, one day after the manufacturing ISM report.
The limited nature of the historical data available for the non-manufacturing PMI contrasts strongly with the long and extensive history of the ISM’s manufacturing report. While the manufacturing survey has been conducted on a continuous basis (with brief interruptions during the Second World War), the non-manufacturing survey has a history stretching back to 1998. As such, identifying inflexion points in the economy, or even understanding economic developments and evaluating data is a lot harder with the ISM non-manufacturing release.
The ISM report breaks down U. S. services industries into the following groups: Real Estate, Rental & Leasing; Arts, Entertainment & Recreation; Agriculture, Forestry, Fishing & Hunting; Mining; Information; Health Care & Social Assistance; and Retail Trade, Management of Companies & Support Services; Public Administration; Finance & Insurance; Wholesale Trade; Professional, Scientific & Technical Services; Transportation & Warehousing; Construction; Educational Services; and Accommodation & Food Services, and Other Services. Answers from ISM’s questions by each sector are then weighed and reformulated into a diffusion index which is released to the public eventually.
Advantages and disadvantages of the Non-manufacturing PMI as an economic release.
The most important advantage of the services PMI is the size of the survey. The services sector is the most significant part of the American economy, covering about 90 percent of economic activity, and since this survey reports on its conditions, it is a reliable gauge for the status of the overall U. S. economy. Through its PMI the ISM is able to capture trends in the services sector, and report on them in a timely and precise manner. The non-manufacturing survey is released on the third day of each month, it is one of the earliest releases in any month, and plays an important role in establishing investor sentiment.
The employment component of the non-manufacturing sector is often regarded as an advance warning system for the subsequent non-farm payrolls release. Since the non-manufacturing survey covers a much larger portion of the labor force, it is thought to correlate better with the eventual non-farm payrolls release which the ISM PMIs precede by a few days, along with other unemployment surveys.
The disadvantages of the services PMI are the same as those of the manufacturing survey. The arbitrary nature of the answers provided reduces the clarity and value of the PMIs figures. In addition, the brief period covered (data stretches back to 1998 only), diminishes our ability to compare present figures with past values.

EUR/USD: Trading the US ISM Non-Manufacturing PMI.
The US ISM Non-Manufacturing PMI (Purchasing Managers’ Index) is based on a survey of purchasing managers, excluding those in the manufacturing sector. Respondents are surveyed for their views on the services sector in the US. A reading which is higher than the market forecast is bullish for the dollar.
Update: ISM Non-Manufacturing PMI crashes to 51.4 – EUR/USD leaps.
Here are all the details, and 5 possible outcomes for EUR/USD .
Published on Tuesday at 14:00 GMT.
Analysts are always interested in the views of purchase managers about the economy, as they are considered to be attuned to the latest economic and financial developments. Thus, PMI readings are quite important, and an unexpected reading (higher or lower than the forecast) could affect the movement of EUR/USD.
The July report dipped to 55.5 points, short of the forecast of 56.0. Still, this reading points to solid expansion in the services sector. Little change is expected in the August release.
The ECB is far from achieving its inflation target and keeping pressure on the euro is essential to raising inflation levels. Any hints of future easing would likely push the euro lower. Over in the US, the Fed is expected to move in the opposite direction, with a rate hike a strong possibility in December. So, the overall sentiment is bearish on EUR/USD towards this release.
Technical levels, from top to bottom: 1.1335, 1.1230, 1.1190, 1.1125, 1.1070 and 1.10.
Within expectations : 52.0 to 59.0: In such a case, EUR/USD is likely to rise within range, with a small chance of breaking higher. Above expectations: 59.1 to 63.0: An unexpected higher reading can send the pair below one support level. Well above expectations : Above 63.0: A sharp jump by the PMI could push EUR/USD downwards, and a second support level might be broken as a result. Below expectations : 48.0 to 51.9: A weak reading could push the pair upwards and break one resistance line. Well below expectations : Below 48.0: A sharp contraction by the index would indicate significant contraction in the services sector. This could push the pair higher, possibly breaking a second resistance line.
About Author.
A native of Toronto, Canada, Kenneth worked for seven years in the marketing and trading departments at Bendix, a foreign exchange company in Toronto. Kenneth is also a lawyer, and has extensive experience as an editor and writer.
I don’t believe is going to happen, there was recently a very negative jobs report and mostly they only raise rates when the economy improves.
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Foreign exchange (Forex) trading carries a high level of risk and may not be suitable for all investors. The risk grows as the leverage is higher. Investment objectives, risk appetite and the trader's level of experience should be carefully weighed before entering the Forex market. There is always a possibility of losing some or all of your initial investment / deposit, so you should not invest money which you cannot afford to lose. The high risk that is involved with currency trading must be known to you. Please ask for advice from an independent financial advisor before entering this market. Any comments made on Forex Crunch or on other sites that have received permission to republish the content originating on Forex Crunch reflect the opinions of the individual authors and do not necessarily represent the opinions of any of Forex Crunch's authorized authors. Forex Crunch has not verified the accuracy or basis-in-fact of any claim or statement made by any independent author: Omissions and errors may occur. Any news, analysis, opinion, price quote or any other information contained on Forex Crunch and permitted re-published content should be taken as general market commentary. This is by no means investment advice. Forex Crunch will not accept liability for any damage, loss, including without limitation to, any profit or loss, which may either arise directly or indirectly from use of such information.

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Top Brokers.
About ForexCrunch.
rex Crunch is a site all about the foreign exchange market, which consists of news, opinions, daily and weekly forex analysis, technical analysis, tutorials, basics of the forex market, forex software posts, insights about the forex industry and whatever is related to Forex.
Useful Links.
Recent Updates.
Disclaimer.
Foreign exchange (Forex) trading carries a high level of risk and may not be suitable for all investors. The risk grows as the leverage is higher. Investment objectives, risk appetite and the trader's level of experience should be carefully weighed before entering the Forex market. There is always a possibility of losing some or all of your initial investment / deposit, so you should not invest money which you cannot afford to lose. The high risk that is involved with currency trading must be known to you. Please ask for advice from an independent financial advisor before entering this market. Any comments made on Forex Crunch or on other sites that have received permission to republish the content originating on Forex Crunch reflect the opinions of the individual authors and do not necessarily represent the opinions of any of Forex Crunch's authorized authors. Forex Crunch has not verified the accuracy or basis-in-fact of any claim or statement made by any independent author: Omissions and errors may occur. Any news, analysis, opinion, price quote or any other information contained on Forex Crunch and permitted re-published content should be taken as general market commentary. This is by no means investment advice. Forex Crunch will not accept liability for any damage, loss, including without limitation to, any profit or loss, which may either arise directly or indirectly from use of such information.