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EUR/USD Risks Bullish Breakout on Slowing ISM Non-Manufacturing

EUR/USD Risks Bullish Breakout on Slowing ISM Non-Manufacturing

2016-02-03 10:00:00
David Song, Shuyang Ren,
Share:

- U.S. ISM Non-Manufacturing Survey to Slow for Third Consecutive Month.

- Reading of 55.2 Would Mark the Lowest Print Since April 2014.

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

A slowdown in the ISM Non-Manufacturing survey may produce headwinds for the greenback and spur a near-term rally in EUR/USD as fears of a slowing recovery dampens bets for a Fed rate-hike in the first-half of 2016.

What’s Expected:

EUR/USD ISM Non-Manufacturing

Click Here for the DailyFX Calendar

Why Is This Event Important:

Even though the Federal Open Market Committee (FOMC) appears to be on course to implement higher borrowing-costs, mixed data prints coming out of the U.S. may encourage the central bank to endorse a wait-and-see approach at the March 16 interest rate decision as the ongoing slack on the real economy undermines the Fed’s scope to achieve its 2% inflation target over the policy horizon.

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Personal Spending (DEC)

0.1%

0.0%

Durable Goods Orders (DEC P)

-0.7%

-5.1%

Advance Retail Sales (DEC)

-0.1%

-0.1%

The ISM survey may highlight a marked slowdown in service-based activity as households scale back on spending, and a dismal development may drag on interest rate expectations as the FOMC remains ‘data dependent.’

Risk: Bullish Argument/Scenario

Release

Expected

Actual

New Home Sales (MoM) (DEC)

2.0%

10.8%

NFIB Small Business Optimism (DEC)

95.0

95.2

Consumer Confidence (JAN)

96.5

98.1

Nevertheless, improved confidence accompanied by the pickup in the housing market may generate pickup in private-sector activity, and a stronger-than-expected ISM print may boost the appeal of the greenback as it reinforces Fed expectations for a consumption-driven recovery in 2016.

How To Trade This Event Risk(Video)

Bearish USD Trade: ISM Non-Manufacturing Slips to 55.2 or Lower

  • Need green, five-minute candle following the ISM print to consider a long EUR/USD trade.
  • If market reaction favors a bearish dollar trade, buy EUR/USD 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: U.S. Service-Based Activity Unexpectedly Picks Up

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

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Potential Price Targets For The Release

EURUSD Daily

EUR/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • The diverging paths for monetary policy casts a long-term bearish outlook for EUR/USD, but the pair may attempt to break out of the triangle/wedge formation carried over from the previous month should the ISM report push market participants to push out bets for the next Fed rate-hike.
  • The DailyFX Speculative Sentiment Index (SSI) shows retail crowd remains net-short EUR/USD since January 25, but the ratio appears to be working its way back towards recent extremes as it slips to -1.80, with 36% of traders 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

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

DEC 2015

01/06/2015 15:00 GMT

56.0

55.3K

+14

-16

December 2015 U.S. ISM Non-Manufacturing

EUR/USD Chart

The U.S. ISM Non-Manufacturing survey missed market expectations, with the figure slipping to 55.3 in December from a revised 56.6 the month prior to mark the lowest reading since May 2014. Despite the weaker-than-expect print, a deeper look at the report showed a rebound in New Export Orders paired with a pickup in New Orders, while the Employment component advance to 55.7 from 55.0 in November. Signs of a slowing recovery may encourage the Federal Reserve to largely endorse a wait-and-see approach in the first-half of 2016, but the central bank may stay on course to implement higher borrowing-costs over the coming months as Chair Janet Yellen remains upbeat on the economy. The bearish reaction in the greenback was short-lived, with EUR/USD struggling to hold above the 1.1950 region as it closed the day at 1.1888.

Read More:

EURUSD Consolidation Break Imminent- Levels To Know

Silver and Platinum Price Action Not Supporting Gold Fervor

USD/CAD Technical Analysis: CAD Bulls Likely In Charge below 1.4325 (Levels)

COT-Big Increase in Net Long Position for Crude Oil Trend Followers

Get our top trading opportunities of 2016 HERE

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

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

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