The US Markit PMI report for September will be published at 14:45 BST, and could rock the markets, much like the Euro area version of the report did this London morning, casuing the EURUSD and DAX index to slide. If the PMI Composite outcome is lower than projected it could also trigger the S&P 500 to break the last week’s trading range.
The European PMI Composite declined to 50.4 in September from 51.9 in August, and lower than the 51.9 projected by economists. The composite is a combination of Services and Manufacturing PMI, and the leading economic indicator is now suggesting that the Euro area (countries that are using the Euro), GDP is set to rise by just 0.1% in the third quarter. The indicator is also suggesting that economic activity ended on a weak note. As a result of the weak report, the DAX index breached below the 12302 to 12500 range, and if the index manages to close below the lower limit of the range the trend in the DAX index would have turned downwards. The EURUSD also decline on the news and remains in a downtrend as traders await the US Markit PMI report.
The US Markit PMI Composite is anticipated to decline to 49.6 from 50.7, but the large surprise in Europe hints that the outcome in the US might be a bit lower than what economist are currently projecting. In August the index printed 50.7 and according to Chris Williamson, Chief Business Economist at IHS Markit, the weak reading suggested that annualized US GDP was increasing at 1% in August, but that the outcome for the whole third quarter was 1.5%. A lower than expected US PMI this afternoon might once again cause traders to worry about a world economic slowdown.
In the short-term, the trend will remain bullish as long we trade above the August 2 low of 1429.77. The price is about 60 dollars from the low, and about 54 dollars from the next major targets, hence the risk-reward ratio for a fresh long position is poor. However, if the price corrects 50% of the rally from the August 2, and thereby reaches 1461 level, the risk-reward ratio will improve to 2.54 times the risk.
The S&P 500 is also trapped in a similar technical pattern, and a break to the 2977.9 level might send the S&P 500 to the 2932 level. However, until the rectangle is broken, the index might still be able to rise and reach its September 2019 high of 3024.5. On a break to the 3024.5 level, the index might reach the 3070.8 level.