Upbeat ISM Manufacturing Survey to Fuel EUR/USD Losses
- ISM Manufacturing Survey to Hold at Second-Highest Reading for 2016.
- Employment Component Has Contracted for Last Six Consecutive Months.
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Trading the News: U.S. ISM Manufacturing
Even though the ISM Manufacturing survey is expected to hold steady at 51.3 in June, another unexpected uptick may heighten the appeal of the greenback and spur a short-term decline in EUR/USD as it instills an improved outlook for growth.
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Why Is This Event Important:
Positive data prints coming out of the U.S. economy may put increased pressure on the Federal Open Market Committee (FOMC) to implement a rate-hike over the coming months, but signs of a slowing recovery may force the central bank to preserve a wait-and-see approach throughout 2016 in an effort to curb the downside risks surrounding the region.
Expectations: Bullish Argument/Scenario
|Real Personal Spending (MAY)||0.2%||0.3%|
|Consumer Confidence (JUN)||93.5||98.0|
|Advance Retail Sales (MoM) (MAY)||0.3%||0.5%|
Improved confidence accompanied by the pickup in private-sector spending may encourage another uptick in the ISM survey, and a positive development may spark a bullish reaction in the greenback as it boosts interest-rate expectations.
Risk: Bearish Argument/Scenario
|Advance Goods Trade Balance (MAY)||-$59.5B||-$60.6B|
|Non-Defense Capital Goods Orders ex. Aircrafts (MAY P)||0.4%||-0.7%|
|Manufacturing Production (SIC) (MAY)||-0.1%||-0.4%|
Nevertheless, the weakening outlook for global growth paired with the decline in private investment may drag on business sentiment, and a dismal report may produce near-term headwinds for the greenback as market participants push out bets for the next Fed rate-hike.
How To Trade This Event Risk(Video)
Bullish USD Trade: ISM Report Unexpectedly Improves for Second Month
- Need red, five-minute candle following the statement 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: Manufacturing Survey Falls Short of Market Expectations
- Need green, five-minute candle to favor a long EUR/USD trade.
- Implement same setup as the bullish dollar trade, just in reverse.
Potential Price Targets For The Release
- Failure to preserve the upward trend from back in December puts the 2016 advance at risk, with a close below the Fibonacci overlap around 1.0960 (23.6% retracement) to 1.0970 (38.2% retracement) raising the scope for a further decline in EUR/USD as it appears to be carving a head-and-shoulders top going into the second-half of the year.
- Key Resistance: 1.1760 (61.8% retracement) to 1.1810 (38.2% retracement)
- Key Support: Interim Support: 1.0380 (78.6% expansion) to 1.0410 (61.8% expansion)
Check out the short-term technical levels that matter for NZD/USD heading into the testimony!
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Impact that the ISM Manufacturing survey has had on EUR/USD during the previous release
|Period||Data Released||Estimate||Actual||Pips Change||Pips Change|
|MAY 2016||06/01/2016 14:00 GMT||50.3||51.3||+4||+10|
May 2016 U.S. ISM Manufacturing
The ISM Manufacturing survey unexpectedly improved in May, with the index advancing to 51.3 from 50.8 the month prior. A deeper look at the report showed the Prices Paid index climbing to 63.5 from 59.0 in April, while the Employment component held steady at 49.2 to mark the sixth consecutive contraction, with the gauge for Production narrowing to 52.6 from 54.2 during the same period. The initial move lower in EUR/USD was short-lived, with EUR/USD bouncing back from the 1.1150 zone to end the day at 1.1186.
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--- Written by David Song, Currency Analyst
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