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Deflating ISM Non-Manufacturing Survey to Spur EUR/USD Rebound

Deflating ISM Non-Manufacturing Survey to Spur EUR/USD Rebound

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

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

- Reading of 53.0 Would Mark the Lowest Print Since February 2014.

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

A further slowdown in the ISM Non-Manufacturing survey may dampen the appeal of the greenback and spark a short-term rebound in EUR/USD as it puts increase pressure on the Federal Open Market Committee (FOMC) to further delay the normalization cycle.

What’s Expected:

EUR/USD ISM Non-Manufacturing

Click Here for the DailyFX Calendar

Why Is This Event Important:

Even though the U.S. economy approaches ‘full-employment,’ signs of a slowing recovery may encourage the FOMC to endorse a wait-and-see approach at the March 16 interest rate decision, and the dollar stands at risk of facing headwinds over the coming days should the central bank curb its outlook for growth and inflation.

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Pending Home Sales (MoM) (JAN)

0.5%

-2.5%

Consumer Confidence (FEB)

97.2

92.2

NFIB Small Business Optimism (JAN)

94.5

93.9

Waning household and business confidence may drag on service-based activity, and a marked slowdown in the ISM survey may generate a bearish reaction in the dollar as market participants push out bets for the next Fed rate-hike.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Personal Spending (JAN)

0.3%

0.5%

Advance Retail Sales (MoM) (JAN)

0.1%

0.2%

Consumer Credit (DEC)

$16.000B

$21.267B

Nevertheless, the pickup in private-sector consumption paired with the ongoing expansion in consumer credit may generate a better-than-expected ISM report, and a positive development may spur increased demand for the greenback as it boosts interest-rate expectations.

How To Trade This Event Risk(Video)

Bearish USD Trade: ISM Non-Manufacturing Survey Slips to 53.0 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 Improves

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

Potential Price Targets For The Release

EURUSD Daily

EUR/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Following the failed run at the October high (1.1494), EUR/USD may continue to give back the advance from December as price & the Relative Strength Index (RSI) struggle to preserve the bullish formation carried over from the previous year.
  • Interim Resistance: 1.1510 (50% retracement) to 1.1520 (61.8% expansion)
  • Interim Support: Interim Support: 1.0380 (78.6% expansion) to 1.0410 (61.8% expansion)

Avoid the pitfalls of trading by steering clear of classic mistakes. Review these principles in the "Traits of Successful Traders" series.

EUR/USD SSI
  • The DailyFX Speculative Sentiment Index (SSI) shows retail FX has flipped net-long EUR/USD on February 26, with the ratio moving away from the extreme reading in February as the figure slipped to -2.00.
  • Even though EUR/USD extends the decline from earlier this week, the ratio is currently sitting a +1.16 as 54% of traders are now long, with short positions 17.6% lower from the previous week.

Why and how do we use the SSI in trading? View our video and download the free indicator here

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)

JAN 2016

02/03/2016 15:00 GMT

55.1

53.5

+4

+135

January 2016 U.S. ISM Non-Manufacturing

EUR/USD Chart

The U.S. ISM Non-Manufacturing survey failed to meet market expectations in January as the figure narrowed to 53.5 from a revised 55.9 the month prior to mark the lowest reading since February 2014. A deeper look at the report showed a further slowdown in the Employment component, with the figure slipping to 52.1 from 56.3 in December, while the gauge for Business Activity narrowed to 53.9 to post the lowest reading since August 2012. Despite the lackluster reaction to the ISM survey, the greenback struggled to hold its ground throughout the North American trade, with EUR/USD climbing above the 1.1050 region to close the day at 1.1102.

Read More:

EUR/USD – Cracks Another Big Support Zone

Crude Traders Make the Leap; Most Buying Since March 2011

Silver – Next Few Days Important For the Metal

March Seasonality Sees Weaker GBP, JPY, and Gold versus US Dollar

Get our top trading opportunities of 2016 HERE

Avoid the pitfalls of trading by steering clear of classic mistakes. Review these principles in the "Traits of Successful Traders" series.

--- 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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