Image source: Lukas Gojda © 123RF.com
The Institute for Supply Management just released the manufacturing PMI data for October, which drastically exceeded the initial market forecasts. According to the findings of the report, US manufacturing rose to 59.3 index points the previous month, beating the consensus forecasts for a moderate rise to 55.6 index points.
The American economy has been consistently exhibiting signs of stabilisation over the previous couple of months, and manufacturing takes the cake as one of the best-performing sectors of industry.
US Manufacturing PMI. Image source: TradingEconomics.com
As can be seen on the graph above, manufacturing has been consistently improving in the third quarter, even outgrowing the recorded performance prior to the outbreak of the coronavirus crisis.
The industry numbers for October come hours before the crucially important Presidential Election in the US, as manufacturing represents a central battleground for the two candidates. Donald Trump has taunted on multiple occasions the robustness of US manufacturing as being the result of his protectionist policies.
The impact of today's economic report on the dollar could easily be discounted by the other top-tier events taking place in this action-packed week. However, the better-than-expected data is likely to support the reeling stock market, particularly the Dow Jones Industrial Average.
As can be seen on the hourly chart below, the index has recently broken out above the upper boundary of a major descending channel. Following the rebound from the major support level at 26150, the price action looks poised to test the major resistance level at 27500 next.
The more than welcoming data from today is likely to foster such an upswing. As regards the technical outlook, several key developments also warrant closer attention.
After the DJI broke out above the minor resistance (currently support) level at 26800, the subsequent bearish pullback was terminated above set support, and also above the 100-day MA (in blue).
The resulting hammer candlestick represents a major indication that the price action is likely to continue trading higher in the immediate future.
While the 20-day MA (in red) shot above the 50-day MA (in green), the two remain concentrated below the 100-day MA. This means that the reversal is too recent and that the bears still retain some level of control.
In other words, do not expect the price action to continue appreciating uninterrupted, and be prepared for more adverse fluctuations and unexpected pullbacks.
DJI 1H Price Chart. Image source: Trendsharks ©, created with TradingView.com
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