Fundamental Analysis in Python — The ISM PMI Technique
Using the ISM PMI as a Predictor of the Currency Market. What Are the Results?
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Fundamental analysis is a crucial part in investments and can also be a timing tool in some instances. The basic idea is that since it targets the very long-term, timing the market is either not important or left to technical analysis. However, tools such as the ISM PMI, when used right, may provide some tops and bottoms on some markets. In this article, we will discuss the ISM PMI and then try to see whether it provides good signals on the US Dollar or not.
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The ISM PMI
The institute for supply management provides a monthly survey called the purchasing manager’s index abbreviated to PMI, which is based on questions asked to 400 representatives of industrial companies about the current and future trend of their different activities. It is composed of 5 components that can also be analyzed individually:
- New orders — 30% weight.
- Production — 25% weight.
- Employment — 20% weight.
- Supplier Deliveries — 15% weight.
- Inventories — 10% weight.
Typically, we interpret the index as 50 being the neutral state of the economy (neither growing and neither shrinking). A reading above 50 indicates an expansion in manufacturing and a reading below 50 indicates shrinking in manufacturing. The PMI tends to peak before the whole…
