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Upbeat ISM Non-Manufacturing Survey to Fuel EUR/USD Weakness

Upbeat ISM Non-Manufacturing Survey to Fuel EUR/USD Weakness

David Song, Shuyang Ren,

- U.S. ISM Non-Manufacturing Survey to Uptick for Sixth Time in Last 12-Months.

- Employment Component Slowed to 55.0 in November from 59.2 the Month Prior.

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Trading the News: U.S. ISM Non-Manufacturing

A pickup in the ISM Non-Manufacturing survey may boost the appeal of the greenback and spur a further decline in EUR/USD as it raises the Federal Reserve’s scope to implement higher borrowing-costs in 2016.

What’s Expected:

EUR/USD ISM Non-Manufacturing

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Why Is This Event Important:

With the U.S. economy approaching full-employment, signs of a stronger recovery may encourage the Federal Open Market Committee (FOMC) to adopt a more hawkish tone over the coming months especially as Chair Janet Yellen anticipates the region to achieve the 2% inflation target over the policy horizon.

Expectations: Bullish Argument/Scenario

Consumer Confidence (DEC)93.596.5
Gross Domestic Product (QoQ) (Annualized) (3Q F)1.9%2.0%
Building Permits (NOV)-1.0%11.0%

Improved confidence accompanied by the expansion in private-sector activity may generate a strong ISM print, and a positive development may spur increased demand for the dollar as it boosts interest rate expectations.

Risk: Bearish Argument/Scenario

Advance Retail Sales (MoM) (NOV)0.3%0.2%
Wholesale Trade Sales (MoM) (OCT)0.2%0.0%
Consumer Credit (OCT)$20.000B$15.982B

However, the slowdown private-sector lending paired with the ongoing slack in household consumption may drag on service-based activity, and an unexpected dip in the survey may prompt the Fed to endorse a wait-and-see approach at the January 27 interest rate decision as the committee largely looks for evidence of stronger inflation.

How To Trade This Event Risk(Video)

Bullish USD Trade: ISM Non-Manufacturing Advances to 56.0 or Higher

  • Need red, five-minute candle following the ISM print to consider a short trade on EUR/USD.
  • If market reaction favors a bullish dollar trade, sell EUR/USD 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: U.S. Service-Based Activity Unexpectedly Slows

  • Need green, five-minute candle to favor a long EUR/USD trade.
  • Implement same setup as the bullish dollar trade, just in the opposite direction.

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Potential Price Targets For The Release


EUR/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • EUR/USD may continue to give back the advance following the ECB’s December meeting as it fails to hold above the 1.0800 handle (50% expansion), with a close below 1.0730 (78.6% retracement) raising the risk for a run at the December low (1.0516).
  • DailyFX Speculative Sentiment Index (SSI) shows the retail crowd has flipped net-long EUR/USD ahead of the ISM Non-Manufacturing survey, with the ratio climbing to +1.11 as 53% of traders are now long.
  • Interim Resistance: 1.1052 (November high) to 1.1090 (50% retracement)
  • Interim Support: Interim Support: 1.0380 (78.6% expansion) to 1.0410 (61.8% expansion)

Impact that the U.S. ISM Non-Manufacturing has had on EUR/USD during the previous month

PeriodData ReleasedEstimateActualPips ChangePips Change
NOV 201512/03/2015 15:00 GMT58.055.9K+8+98

November 2015 U.S. Non-Farm Payrolls

The U.S. ISM Non-Manufacturing survey failed to meet market expectations in November, with the index slipping to a 6-month low of 55.9 from 59.1 the month prior. A deeper look at report a slowdown inNew Orders and New Export Orders along with a downtick in the Employment component, while gauge for Prices Paid expanded for the first time since August. Despite the weaker-than-expected print, the Federal Reserve may continue to prepare U.S. households and businesses for higher borrowing-costs as Chair Janet Yellen remains upbeat on the economy. Nevertheless, the greenback struggled to hold its ground following the release, with EUR/USD rising above the 1.0900 handle and closing the day at 1.0937.

Read More:

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Trading Opportunities of 2016: Key Currency Crosses to Watch amid the Diverging Paths for Monetary Policy

--- Written by David Song, Currency Analyst and Shuyang Ren

To contact David, e-mail Follow me on Twitter at @DavidJSong.

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