The Effect of Euro Manufacturing PMIs on Forex Trading

The beginning of May 2012 saw the release of the Eurozone Manufacturing PMI figures and the majority of them do not make pleasant viewing.

European Manufacturing PMIs April 2012

A figure of 50.1 or more indicates that the country’s manufacturing sector expanded. This table shows that only two members of the Eurozone, plus the UK which registered a 50.5 figure (which was still a lower rate of growth than expected), showed signs of expansion in the previous month of April.

The average Eurozone PMI came in at 45.9; its lowest figure for 34 months. This is a figure that has not been seen since the global financial crisis in 2009 and may go some way to explaining the reasons why the UK and Spain have recently re-entered a recession.

The figures were perhaps the main contributing factor to the recent volatility seen in forex trading, particularly the EUR/USD currency pair, which is the most frequently traded pair in the world. Within minutes of the Eurozone manufacturing PMI figures release, the EUR/USD plummeted.

EUR USD after the PMI announcement

The above graph shows a fairly substantial 90 pip drop in the EUR/USD, indicating the effect volatility can have in forex trading. With seemingly persistent contracting growth across the Eurozone, it is a strong argument as to why the Euro has suffered across many currency pairs found in forex trading.

Another economic indicator that is often regarded as important is the zone’s employment rates. Unfortunately, for Europe’s perspective, these figures are not encouraging either. April saw the unemployment rate across Europe reach a record high of 10.9%. Some Eurozone countries are contributing more heavily than others to this rate, but the figure may lead to some investors involved with forex trading take a bearish view on the market. This is slightly offset in the EUR/USD pair as the US employment figures have also recently been coming in below government estimate.

There are many other factors that could have an impact on the forex market that should also be considered before trading. Whether you have a bearish or bullish view on the market, you can start forex CFD trading with IG Markets. They are a forex and CFD provider that offer many educational resources to help teach you more about what could affect forex trading. There is also a free demo account available for their award-winning trading platform, allowing you to test your trading strategy before investing.

Please refer to the risk disclosure statement from IG Markets. You should consider the information in light of your specific objectives, financial situation or needs before making any trading or investment decision. CFD trading can result in losses that exceed your initial deposit. This article is provided for information purposes and should not be regarded as financial product advice.

Author's Bio: 

James Paxton is a financial writer who specialises in the forex markets. He combines fundamental and technical analysis; looking at many of the factors that can affect forex trading.