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A Contraction In Services Coincides With Bullish EURUSD Technical Outlook

Thursday, 04 September 2008 08:33:44 GMT  |  John Rivera, Currency Analyst

The U.S. service sector is expected to have remained in contraction for a third straight month as a weak labor market and inflation is expected to have curbed demand. The reports employment component will be of particular interest as it is a leading indicator for the upcoming Non-farm payrolls report.

Aug 28	US ISM Non-Manufacturing  (12:30GMT; 8:30EDT)
	Expected:                      49.5
	Previous:                       49.5

 

Fundamental Outlook

The U.S. service sector is expected to have remained in contraction for a third straight month as a weak labor market and inflation is expected to have curbed demand. The reports employment component will be of particular interest as it is a leading indicator for the upcoming Non-farm payrolls report. An ECB rate decision may already have Euro Bulls out in full force, if President Trichet doesn’t signal a future rate cut. The EURUSD technical outlook is calling bullish momentum and the fundamental outlook agrees calling for a long EURUSD position. However, a significant rebound in services would generate significant Bullish dollar momentum as the sector accounts for 70% of GDP.

 

The favored count that we presented yesterday (terminal 5th from a triangle) appears to have been correct.  The EURUSD found bottom in late European trading yesterday and has rallied over 130 pips from the low.  Price has pushed through the top side of the channel that had contained wave 5, signaling the reversal.  Watch out for event risk tomorrow when Trichet speaks…but probability is high that the trend is now up.

 

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