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USD Rebound at Risk as ISM Manufacturing Slows

USD Rebound at Risk as ISM Manufacturing Slows

David Song, Strategist

- U.S. ISM Manufacturing to Narrow for First Time Since May

- ISM Manufacturing Increased for the Last Four Prints

Trading the News: U.S. ISM Manufacturing

A slowdown in the ISM Manufacturing survey may undermine the rebound in the U.S. dollar as it highlights a slowing recovery in the world’s largest economy.

What’s Expected:

Time of release: 11/01/2013 14:00 GMT, 10:00 EDT

Primary Pair Impact: EURUSD

Expected: 55.0

Previous: 56.2

DailyFX Forecast: 53.0 to 58.0

Why Is This Event Important:

Data prints coming out ahead of the Fed’s December 17-18 meeting may continue to skew the policy outlook as the central bank pledges to ‘closely monitor incoming information on economic and financial developments,’ and we may see the Federal Open Market Committee (FOMC) ultimately carry its highly accommodative policy stance into 2014 to further combat the downside risks for growth and inflation.

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Dallas Fed Manufacturing Activity Survey (OCT)

10.0

3.6

Change in Non-Farm Payrolls (SEP)

180K

148K

Empire Manufacturing (OCT)

7.00

1.52

The persistent slack in the real economy may prompt businesses to scale back on production, and a marked decline in the ISM survey may encourage the FOMC to further delay its exit strategy in an effort to encourage a stronger recovery.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Industrial Production (MoM) (SEP)

0.4%

0.6%

Durable Goods Orders (SEP)

2.3%

3.7%

Wholesale Trade Sales (MoM) (AUG)

0.3%

0.6%

Nevertheless, firms may increase their outputs amid the elasticity in private sector consumption, and a positive print may foster a more meaningful rebound in the dollar as market participants weigh the outlook for monetary policy.

How To Trade This Event Risk(Video)

Join DailyFX on Demand for Full Coverage of U.S. ISM Manufacturing Survey

Bearish USD Trade: ISM Manufacturing Narrows to 55.0 or Lower

  • Need to see green, five-minute candle following the print to consider a short dollar trade
  • If market reaction favors a sell 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
  • Shift stop to entry on remaining position once initial target is hit, set reasonable limit

Bullish USD Trade: Business Outputs Expand at Faster Pace

  • Need red, five-minute candle to favor a short EURUSD trade
  • Implement same setup as the bearish dollar trade, just in opposite direction

Potential Price Targets For The Release

EURUSD Daily

Forex_USD_Rebound_at_Risk_as_ISM_Manufacturing_Slows_body_ScreenShot305.jpg, USD Rebound at Risk as ISM Manufacturing Slows

Chart - Created Using FXCM Marketscope 2.0

  • Carves Higher High; Retains Bullish Trend From July
  • Bullish Relative Strength Index Momentum Falters
  • Interim Resistance: 1.3830 (61.8 retracement)
  • Interim Support: 1.3490 (50.0 retracement) to 1.3455 (50.0 expansion)

Impact that the U.S. ISM Manufacturing report has had on USD during the last month

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

SEP 2013

10/01/2013 14:00 GMT

55.0

56.2

-6

-10

September 2013 U.S. ISM Manufacturing

Forex_USD_Rebound_at_Risk_as_ISM_Manufacturing_Slows_body_ScreenShot304.png, USD Rebound at Risk as ISM Manufacturing Slows

The ISM Manufacturing survey unexpectedly increased to 56.2 from 55.7 in August, with the employment component advancing to 55.4 from 53.3 to mark the highest reading for 2013. Despite the choppy reaction, the dollar edged higher throughout the North American trade, with the EURUSD ending the day at 1.3524.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com

Follow me on Twitter at @DavidJSong

To be added to David's e-mail distribution list, please follow this link

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