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EUR/USD Vulnerable to Further Losses on Upbeat ISM Survey

EUR/USD Vulnerable to Further Losses on Upbeat ISM Survey

2016-10-05 10:00:00
David Song, Strategist
Share:

- U.S. ISM Non-Manufacturing to Rebound From Lowest Reading February 2010.

- Employment Component has Expanded (Above 50.0) for Last Three-Months.

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

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

A rebound in the U.S ISM Non-Manufacturing survey may fuel the near-term strength in the greenback and spark a selloff in EUR/USD should the report boost expectations for a 2016 Fed rate-hike.

What’s Expected:

DailyFX Calendar

Click Here for the DailyFX Calendar

Why Is This Event Important:

It seems as the Federal Open Market Committee (FOMC) is taking a similar path to 2015 as a growing number of officials endorse higher borrowing-costs, and the central bank may continue to take a more collective approach to prepare U.S. households and businesses for a December rate-hike as ‘the Committee judges that the case for an increase in the federal funds rate has strengthened.’ However, market participants may pay increased attention to the 2017-rotation as the three dissenting members from the September interest-rate decision (Esther George, Loretta Mester, and Eric Rosengren) give up their votes, and the decline in the long-run forecast for the federal funds rate may become a key theme in the year ahead as Chair Janet Yellen continues to endorse a ‘gradual’ path in normalizing monetary policy.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

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

1.3%

1.4%

Consumer Confidence (SEP)

99.0

104.1

Consumer Credit (JUL)

$16.000B

$17.713B

Improved confidence along with the expansion in private-sector credit may boost service-based activity, and a marked rebound in the headline figure may put increased pressure on the FOMC to raise the benchmark interest rate later this year especially as the U.S. economy approaches ‘full-employment.’

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Personal Spending (AUG)

0.1%

0.0%

Advance Retail Sales (MoM) (AUG)

-0.1%

-0.3%

Average Hourly Earnings (YoY) (AUG)

2.5%

2.4%

However, subdued wage growth accompanied by the recent weakness in household consumption may spur another dismal ISM print, and signs of a slowing economic activity may push the Fed to further delay its normalization cycle as the central bank continues to warn ‘market-based measures of inflation compensation remain low; most survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.

How To Trade This Event Risk(Video)

Bullish USD Trade: ISM Non-Manufacturing Survey Rebounds to 53.0 or Higher

  • Need red, five-minute candle following the print to consider a short position 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: Gauge for U.S. Service-Based Activity Disappoints

  • 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

EUR/USD Daily

EUR/USD Daily Chart

Chart - Created Using Trading View

  • Broader outlook for EUR/USD remains tilted to the upside as price & the Relative Strength Index (RSI) preserve the bullish formations from earlier this year, but the pair may face a narrowing range going through the first full-week of October as it remains stuck within the wedge/triangle formation carried over from the summer months.
  • Interim Resistance: 1.1420 (23.6% retracement) to 1.1428 (June high)
  • Interim Support: 1.0912 (June low) to 1.0940 (61.8% retracement)

Check out the short-term technical levels that matter for USD/JPY heading into the report!

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)

AUG 2016

09/06/2016 14:00 GMT

54.9

51.4

+2

+89

August 2016 ISM Non-Manufacturing

EUR/USD 5-Minute

EUR/USD Chart

The ISM Non-Manufacturing survey unexpectedly narrowed to 51.4 in August from 55.5 the prior to mark the lowest reading since February 2010. A deeper look at the report showed the gauge for New Orders slipping to 51.4 from 60.3 in July, with the Employment component falling to 50.7 from 51.4, while New Export orders dipped below the 50.0 mark to highlight the first contraction since May. The greenback struggled to hold its ground following the dismal ISM survey, with EUR/USD staging a larger advance later in the day to close at 1.1253.

Get our top trading opportunities of 2016 HERE

Read More:

COT-4th Most Selling by CAD Speculators Since at Least 2002

FTSE 100: Bull Pattern Breakout to Start Q4

FX Technical Weekly: Don’t Get Caught Fading the Next EUR/USD Move

USD/JPY Technical Analysis: Fault Lines Are Showing Favoring JPY

--- 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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