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Strong ISM Manufacturing to Drag on EUR/USD Advance- 1.1000 on Radar

Strong ISM Manufacturing to Drag on EUR/USD Advance- 1.1000 on Radar

David Song, Shuyang Ren,

- U.S. ISM Manufacturing Survey Expected to Expand for First Time Since October 2014.

- Employment Component Has Ticked Higher for Last Two Straight Months.

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

Trading the News: U.S. ISM Manufacturing

A pickup in the ISM Manufacturing survey may boost the appeal of the greenback and spur a near-term pullback in EUR/USD as the Federal Reserve anticipates a stronger recovery in the second-quarter of 2015.

What’s Expected:

EUR/USD ISM Manufacturing

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Why Is This Event Important:

Despite speculation for a further delay in the Fed’s normalization cycle, the central bank remains on course to remove the zero-interest rate policy (ZIRP) over the coming months, and a meaningful expansion in the ISM survey may fuel interest rate expectations as the central bank keeps the June 17 meeting on the table for liftoff.

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Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Manufacturing Production (SIC) (MAR)

0.1%

0.1%

Producer Price Index ex Food & Energy (YoY) (MAR)

0.9%

0.9%

Import Price Index (YoY) (MAR)

-10.2%

-10.5%

U.S. firms may crank up production on the back of easing input costs, and a positive development may prop up the near-term outlook for the greenback especially as the Fed remains ‘data dependent.’

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Personal Spending (MAR)

0.5%

0.4%

Gross Domestic Product (Annualized) (QoQ) (1Q A)

1.0%

0.2%

Advance Retail Sales (MoM) (MAR)

1.1%

0.9%

Nevertheless, fears of a slowing recovery paired with the ongoing weakness in private-sector consumption may prompt businesses to trim their outputs, and a dismal manufacturing report may spark another wave of dollar weakness as market participants push back bets for the Fed’s first rate hike.

How To Trade This Event Risk(Video)

Bullish USD Trade: ISM Survey Advances to 52.0 or Higher

  • Need to see red, five-minute candle following the release to consider a short trade on EURUSD.
  • If market reaction favors a bullish dollar trade, sell EURUSD with two separate position.
  • Set stop at the near-by swing high/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.

Bearish USD Trade: Manufacturing Falls Short of Market Expectations

  • Need green, five-minute candle to favor a long EURUSD trade.
  • Implement same setup as the bullish 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

  • Failure to retain the bearish trend from February highlights the risk for a larger advance in EUR/USD especially as the upward trend in the RSI gathers pace.
  • DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains net-short EUR/USD since March 9, but seeing the ratio approach bearish extremes as it slips to -2.68.
  • Interim Resistance: 1.1269 (February low) to 1.1300 (78.6% retracement)
  • Interim Support: 1.0970 (38.2% expansion) to 1.1000 (50% retracement)

Read More:

USD/JPY Carves Lower-Highs in April; Bearish RSI Momentum in Focus

USDCAD Breakdown Stalls at Key Support- May Opening Range in Focus

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)

MAR

2015

04/01/2015 14:00 GMT

52.5

51.5

+13

+23

March 2015 U.S. ISM Manufacturing

EUR/USD Chart

U.S. ISM Manufacturing survey narrowed for the seventh-consecutive months in March as the index slipped to 51.5 from 52.9 the month prior. Most sectors slowed from the month prior, while the gauge for export orders, customer inventories and backlog of orders printed below 50, indicating a contraction. Even though the Fed remains on course to normalize monetary policy, the ongoing slack in the real economy may prompt the central bank to carry its zero-interest rate policy (ZIRP) beyond mid-2015 in an effort to encourage a stronger recovery. The initial spike lower in EUR/USD was short-lived as the pair worked its way back towards the 1.0775 region, but the rebound failed to gather pace following the European close as the pair ended the day at 1.07662.

--- 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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