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The Risks to the Greenback in Manufacturing

David Becker
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www.iforex.com
The Risks to the Greenback in Manufacturing

At 10:00 EST the Institute of Supply Management will release its national manufacturing report, and many believe there will be a bounce back as the weather improved in March, relative to February and January. If the Chicago regional number is any reflection of what traders should expected, there in for a surprise.

The Institute for Supply Management’s Chicago division said its purchasing manager’s survey hit 55.9.That missed expectations for 59.5 and a near 4-point decline from last month’s 59.8.It’s the lowest reading since last August.

According to the ISM, the month over month changes in the Chicago index correctly signal shifts in the national ISM about 70% of the time. Analysts expected Tuesday ISM to increase to 54 from 53.2; but it would probably be more realistic now to expect a dip. The Chicago employment sub-index fell sharply to a neutral reading of 50.

Yields have increased in the short end of the interest rate curve driving the dollar higher. A weaker than expected number would reverse this upward movement, eroding the value of the greenback.

A weaker than expected number could stop the dollar in its tracks. The dollar has broken out against the yen and is poised to test resistance levels near 104. A softer than expected number could push the USDJPY back into its prior range below trend line support which was resistance near 103.10.

Momentum on the currency pair is positive, with the MACD (moving average convergence divergence) index generating a buy signal. This occurs when the spread (the 12-day moving average minus the 26-day moving average) crossing above the 9-day moving average of the spread. The RSI is moving higher with price action reflecting positive momentum while printing near 60, which is the upper end of the neutral range.

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