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EUR/USD to Face Larger Rebound on Dismal ISM Manufacturing

EUR/USD to Face Larger Rebound on Dismal ISM Manufacturing

David Song, Shuyang Ren,

- 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.

For more updates, sign up for David's e-mail distribution list.

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:

EUR/USD ISM Manufacturing

Click Here for the DailyFX Calendar

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.

For LIVE SSI Updates Ahead of the U.S. GDP Print, Join DailyFX on Demand

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Chicago Fed National Activity Index (AUG)

0.33

-0.21

Industrial Production (MoM) (AUG)

0.3%

-0.1%

Manufacturing Production (SIC) (AUG)

0.1%

-0.4%

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

Release

Expected

Actual

Personal Spending (AUG)

0.4%

0.5%

Advance Retail Sales (MoM) (AUG)

0.6%

0.6%

Consumer Credit (JUL)

$17.350B

$26.006B

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

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:

Price & Time: King Dollar

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

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

AUG

2014

9/02/2014 14:00 GMT

57.0

59.0

-4

-2

August 2014 U.S. ISM Manufacturing

EUR/USD to Face Larger Rebound on Dismal 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.

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

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