- U.S. ISM Manufacturing to Narrow for Second Consecutive Month in August.

- Employment Component has Contracted (Below 50.0) on Six Occasions in 2016.

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Trading the News: U.S. ISM Manufacturing

Another downtick in the U.S. ISM Non-Manufacturing survey may halt the recent advance in the greenback and trigger near-term recovery in EUR/USD should the data print dampen expectations for a September Fed rate-hike.

What’s Expected:

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Why Is This Event Important:

Even though Fed officials have shown a greater willingness to implement higher borrowing-costs following the Economic Symposium in Jackson Hole, Wyoming, the central bank may retain the current policy at the next interest-rate decision on September 21 as ‘most survey-based measures of longer-run inflation expectations were little changed, on balance, while market-based measures of inflation compensation remained low.’ Nevertheless, the Federal Open Market Committee (FOMC) may following a similar path to 2015 and prepare U.S. households and businesses for a December rate-hike as Chair Janet Yellen argues ‘the case for an increase in the federal funds rate has strengthened in recent months.’

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Gross Domestic Product (Annualized) (QoQ) (2Q P)

1.1%

1.1%

Unit Labor Costs (2Q P)

1.8%

2.0%

Consumer Credit (JUN)

$16.000B

$12.320B

Rising costs paired with the subdued outlook for growth may drag on business sentiment, and a dismal developemt may spark a bearish reaction in the U.S. dollar as it raises the risk of seeing the Fed further delay its normalization cycle.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Personal Spending (JUL)

0.3%

0.3%

Personal Consumption (2Q P)

4.2%

4.4%

Durable Goods Orders (JUL P)

3.4%

4.4%

However, the pickup in private-sector consumption, one of the leading drivers of growth and inflation, may lead to an unexpected rebound in the ISM survey, and a better-than-expected figure may fuel the near-term advance in the greenback as it boosts bets for a 2016 Fed rate-hike.

How To Trade This Event Risk(Video)

Bearish USD Trade: ISM Survey Narrows to 52.0 or Lower

  • 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: Outlook for Manufacturing 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

EUR/USD Daily

EUR/USD Daily Chart
  • EUR/USD stands a risk for further losses as it fails to preserve the bullish formation carried over from the previous month and carves a near-term series of lower highs & lows, with the Relative Strength Index (RSI) showing a similar dynamic; break/close below 1.1100 (50% retracement), which coincides with the 200-Day SMA (1.1114), may open up the next downside region of interest around 1.0950 (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 AUD/USD heading into the report!

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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

(1 Hour post event )

Pips Change

(End of Day post event)

JUL 2016

08/01/2016 14:00 GMT

53.0

52.6

+8

-6

July 2016 ISM Manufacturing

EUR/USD 5-Minute

EUR/USD Chart

The ISM Manufacturing survey slipped to 52.6 from 53.2 in June, with the employment component narrowing to 49.4 from 50.4 during the same period. At the same time, the gauge for new export orders slowed to 52.5 from 53.5, while measure for New Orders fell to 56.9 from 57.0. The greenback lost ground following the weaker-than-expected report, with EUR/USD climbing above the 1.1170 zone, but the move was short-lived as the pair closed the day at 1.1159.

Get our top trading opportunities of 2016 HERE

Read More:

S&P 500: Yellen Sparks Volatility, Market Starts Week at Pivotal Area

USD/JPY Technical Analysis: Implied Vol Shows Trader’s Nerves

EUR/JPY Technical Analysis: Sticking to the Range

EURUSD: Waiting for the Dip & Rip- Key Resistance at 1.1400

--- Written by David Song, Currency Analyst

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

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