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EUR/USD to Find Relief on Dismal ISM Manufacturing- 1.0850 in Focus

EUR/USD to Find Relief on Dismal ISM Manufacturing- 1.0850 in Focus

David Song, Shuyang Ren,

- U.S. ISM Manufacturing Survey Projected to Slow for Fifth Consecutive Month.

- Employment Component Has Narrowed for Two Straight Months.

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

Trading the News: U.S. ISM Manufacturing

Another downtick in the ISM Manufacturing survey paired with a further slowdown in the employment component may drag on the dollar and spur a rebound in EUR/USD as it dampens expectations for a Fed rate hike in mid-2015.

What’s Expected:

EUR/USD ISM Manufacturing

Click Here for the DailyFX Calendar

Why Is This Event Important:

Indeed, signs of a slower recovery may encourage the Federal Open Market Committee (FOMC) to adopt a more dovish tone for monetary policy, and we may see a growing number of central bank officials show a greater willingness to carry the zero-interest rate policy (ZIRP) into the second-half of the year amid the ongoing slack in the real economy.

For LIVE SSI Updates Ahead of the ISM Print, Join DailyFX on Demand

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Personal Spending (FEB)

0.2%

0.1%

Durable Goods Orders (FEB)

0.2%

-1.4%

Advance Retail Sales (FEB)

0.3%

-0.6%

The ISM Manufacturing survey may continue track lower amid the slowdown in private-sector consumption, and a dismal print may dampen the appeal of the greenback as it increases the Fed’s scope to further delay the normalization cycle.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Consumer Confidence (MAR)

96.4

101.3

Building Permits (MoM) (FEB)

0.5%

3.0%

Non-Farm Payrolls (FEB)

235K

295K

Nevertheless, the rebound in building activity along with the pickup in job growth may highlight an improved outlook for future production, and an expansion in business outputs may heighten the bullish sentiment surrounding the greenback as it puts increased pressure on the FOMC to move away from the highly accommodative policy stance.

How To Trade This Event Risk(Video)

Bearish USD Trade: ISM Survey Slips to 52.5 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 Exceeds Market Expectations

  • 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

EUR/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Failed attempts to close above the 1.1000 handle along with the failure to retain the bullish momentum from earlier this month may highlights the risk of a near-term top in EUR/USD.
  • Interim Resistance: 1.0850 (78.6% expansion) to 1.0865 (38.2% retracement)
  • Interim Support: 1.0700 pivot to 1.0710 (23.6% retracement)

Read More:

EURAUD Scalps Target Weekly Opening Range- Longs at Risk Sub-1.4175

USD/CAD Congestion Ahead- AUD/USD Support at Risk on Dismal China PMI

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)

FEB

2015

03/02/2015 15:00 GMT

53.0

52.9

-18

-33

February 2015 U.S. ISM Manufacturing

EUR/USD Chart

U.S. Manufacturing expanded at a slower pace in February as the ISM survey narrowed to 52.9 from 53.5 the month prior, with a deeper look at the report showing a second consecutive contraction in new export orders, while the employment component slowed for the second-month. Despite the downtick in business outputs, the Federal Reserve may stay on course to normalize monetary policy in mid-2015 as the central bank anticipates lower energy prices to boost private-sector consumption, one of the leading drivers of growth. The greenback strengthened after the release, with EUR/USD sliding below the 1.1200 handle and closing the day at 1.1181.

--- 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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