Business activity indicators in the manufacturing sectors of Germany and the U.S. will be released today:
The German manufacturing PMI will be released at 7:30 (GMT);
The U.S. manufacturing PMI is expected at 1:45 p.m. (GMT+0)
What are these indexes?
Business confidence indexes are a large group of macroeconomic indicators reflecting the current state and future prospects of doing business in the country. These are some of the earliest indicators of the economic situation, so their role as leading indicators is especially important.
There are many different indexes reflecting business conditions and managers' expectations for the future: indexes of current conditions - to understand the existing sentiment; indexes of expectations - to forecast future prospects; industry and service indexes; indexes of new orders, employment, supplies, prices, etc.
A significant part of business planning is based on this data. Business confidence data are used to forecast the necessary level of reserves (both raw materials and finished goods), prices, number of personnel, etc.
How can these indexes be used in trading?
It is known that many of the leading central banks are now actively raising interest rates, in order to fight rising inflation. Here is a critical question of limitations: to what values is it possible to raise the rate without risking the prospects of economic growth?
And in this case, the values of PMIs tell regulators about whether the economy can handle the pressure or not. In other words, is there still room for further tightening or is it time to stop tightening?
In other words, if the value of the activity index is equal to or greater than the forecast, then the economy is doing well and rates can be raised with less risk. And an interest rate increase in most cases leads to a strengthening of the currency.
The final recommendation would be as follows:
To buy EURUSD intraday if the value of the German index is higher than the forecasted one and the value of the U.S. index is lower than the forecasted one.
To sell EURUSD intraday if the value of the German index is below the forecasted one and the value of the U.S. index is higher than the forecasted one.
In other combinations of index values, it is better to avoid opening positions at all.
An intraday trade means that the position is open until the end of the American session, after which a profit or loss is fixed.