- U.S. ISM Manufacturing Survey Expected to Fall Back from Highest Reading Since March 2011.
- Even Though Employment Component Narrowed in August, Still Marked the Second-Highest Print for 2014.
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Trading the News: U.S. ISM Manufacturing
A downtick in the ISM Manufacturing survey may generate a bearish dollar reaction (bullish EUR/USD) should the data print dampen the outlook for growth and inflation.
What’s Expected:
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Why Is This Event Important:
At the same time, we will need to keep a close eye on the employment component as the highly anticipated Non-Farm Payrolls (NFP) report is expected to show the U.S. economy adding another 217K jobs in September, and a material downward revision in the key metrics may undermine the bullish sentiment surrounding the greenback as it drags on interest rate expectations.
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Expectations: Bearish Argument/Scenario
The dollar may face a near-term correction should the ongoing slack in the real economy spur a marked slowdown in manufacturing, and a dismal ISM print may prompt the Fed to further delay its normalization cycle as Chair Janet Yellen remains reluctant to move away from the zero-interest rate policy (ZIRP).
Risk: Bullish Argument/Scenario
Nevertheless, the resilience in private sector consumption may foster another unexpected uptick in the manufacturing survey, and a better-than-expected release may heighten the bullish sentiment surrounding the dollar as it raises the Fed’s scope to implement a rate hike sooner rather than later.
How To Trade This Event Risk(Video)
Bearish USD Trade: ISM Survey Narrows to 58.5 or Lower
Need to see green, five-minute candle following the release to consider a long trade on EURUSD
If market reaction favors a bearish dollar trade, buy EURUSD with two separate position
Set stop at the near-by swing low/reasonable distance from entry; look for at least 1:1 risk-to-reward
Move stop to entry on remaining position once initial target is hit; set reasonable limit
Bullish USD Trade: Manufacturing Unexpectedly Tops Market Forecast for Second Month
Need green, five-minute candle to favor a short EURUSD trade
Implement same setup as the bearish dollar trade, just in the opposite direction
Potential Price Targets For The Release
EUR/USD Daily
Chart – Created Using FXCM Marketscope 2.0
Remains vulnerable to a further decline as near-term bearish RSI momentum remains in play
Interim Resistance: 1.3010 (50.0% retracement) to 1.3020 (23.6% expansion)
Interim Support: 1.2450 (78.6% retracement) to 1.2500 pivot
Read More:
COT: US Dollar Speculator Long Position is Largest on Record
Impact that the U.S. ISM Manufacturing report has had on EUR/USD during the last release
August 2014 U.S. ISM Manufacturing
Manufacturing activity in the U.S. unexpectedly picked up in August as the ISM survey rose to 59.0 from July’s 57.1 print; reaching the highest level since March 2011. The expansion was fueled by a surge in orders for plastics and metals, and highlights the scope for a stronger U.S. recovery in the second half of the year. The market reaction to the positive ISM print was limited and short-lived as the EUR/USD chopped around 1.3128, with the pair closing the day at 1.3122.
— Written by David Song, Currency Analyst and Shuyang Ren
To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.
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EUR/USD to Face Larger Rebound on Dismal ISM Manufacturing
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