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Disappointing ISM Non-Manufacturing Survey to Fuel EUR/USD Advance

Disappointing ISM Non-Manufacturing Survey to Fuel EUR/USD Advance

David Song, Strategist

- U.S. ISM Non-Manufacturing to Pullback From Highest Reading for 2016.

- Employment Component has Contracted Two Times in 2016.

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

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

A downtick in the U.S. ISM Non-Manufacturing survey may drag on the greenback and spark a further advance in EUR/USD should the data print dampen expectations for a 2016 Fed rate-hike.

What’s Expected:

DailyFX Calendar

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Why Is This Event Important:

A marked decline in the ISM survey may encourage the Federal Open Market Committee (FOMC) to retain its current policy at the next quarterly policy meeting in September, and signs of a slowing recovery may encourage Fed officials to further delay the normalization cycle as they remain ‘data-dependent.’

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Personal Income (JUN)

0.3%

0.2%

U. of Michigan Confidence (JUL P)

93.5

89.5

Average Hourly Earnings (YoY) (JUN)

2.7%

2.6%

Subdued wage growth accompanied by waning household confidence may drag on service-based activity, and a dismal print may produce near-term headwinds for the greenback as market participants push out bets for the next Fed rate-hike.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Personal Spending (JUN)

0.3%

0.4%

Advance Retail Sales (MoM) (JUN)

0.1%

0.6%

Non-Farm Payrolls (JUN)

180K

287K

Nevertheless, the pickup in private-sector consumption, one of the leading drivers of growth, may foster a positive development, and an unexpected uptick in the ISM survey may spur a bullish reaction in the dollar as it puts increased pressure on the FOMC to normalize monetary policy sooner rather than later.

How To Trade This Event Risk(Video)

Bearish USD Trade: ISM Non-Manufacturing Survey Narrows to

  • Need green, five-minute candle following the print to consider a long position on EUR/USD.
  • 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: Gauge for Service-Based Activity Disappoints

  • 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

EUR/USD Daily

EUR/USD Daily Chart
  • The deviating paths for monetary policy casts a long-term bearish outlook for EUR/USD, but the pair stands at risk of a larger recovery over the coming days as it breaks out of the bearish formation carried over from the previous month following the failed attempts to close below the Fibonacci overlap around 1.0960 (23.6% retracement) to 1.0970 (38.2% retracement).
  • 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 EUR/USD heading into the report!

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

Impact that the ISM Non-Manufacturing survey has had on EUR/USD during the previous release

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

JUN 2016

07/06/2016 14:00 GMT

53.3

56.5

+6

+33

June 2016 ISM Non-Manufacturing

EUR/USD 5-Minute

EUR/USD Chart

The ISM Non-Manufacturing survey exceeded market expectations in June, with the index climbing to 56.5 from 52.9 in May to mark the highest reading for 2016. A deeper look at the report showed the gauge for New Orders advancing to 59.9 from 54.2 in May, with the Employment component climbing to 52.7 from 49.7, while Backlog of Orders slipped to 47.5 from 50.0 to mark the first contraction for 2016. The initial market reaction to the ISM survey was short-lived, with EUR/USD snapping back from 1.1028 to end the day at 1.1100.

Get our top trading opportunities of 2016 HERE

Read More:

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Post-Brexit NZDUSD Support Vulnerable to Weak NZ Trade Balance

USD/JPY July Recovery at Risk on Wait-and-See FOMC/BoJ Policy

--- Written by David Song, Currency Analyst

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.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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