Thursday June 2, 2016 - 15:33:11 GMT
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What May 2016 Manufacturing PMIs Say About Future Forex Values
John M. Bland, MBA
The May Manufacturing PMI's for major economies have just been released this week. Even though most of the major economies are dominated by their service sectors, I prefer to use the traditional manufacturing indices because they tend to respond more quickly to changes in economic activity. For the comparative charts, I smooth the monthly data by using three month moving averages to make the underlying trends stand out more clearly.
In the chart above, data are for 2014 through almost half of 2016. YOu can see generally that the slopes on all four lines (US, UK, EZ and Japan) are down from the start of 2014 until now. This is true despite unprecedented monetary ease in all four monetary policy areas. The U.K. and Japan appear most recently to be weakening, While the Eurozone has been just about flat for the entire period. The U.S. has recovered from a very weak spell early this year. In my opinion, this chart on a relative basis should favor the USD and EUR over the GBP and JPY.
The second chart above features economies who are key producers of commodities, except for China, which is a major consumer. In contrast to the top chart, the lines have clearly turned up since the start of 2016. I would attribute this to rising energy based on the recent rise in crude oil prices. The data also suggest that the Chinese economy is in the process of recovering from a contraction that started early in 2015. In my opinion, these data suggest support at the margin for CAD, AUD and USD.
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John M. Bland
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