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Encouraging ISM Manufacturing Survey to Feed Bearish EUR/USD Outlook

Encouraging ISM Manufacturing Survey to Feed Bearish EUR/USD Outlook

2016-12-01 10:00:00
David Song, Strategist
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- U.S. ISM Manufacturing Survey to Increase for Third Consecutive Month in November.

- Employment Component Recovered in October with Index Advancing to 52.9 from 49.7.

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

Trading the News: U.S. ISM Manufacturing

EUR/USD stands at risk of extending the decline from earlier this week as the ISM Manufacturing survey is expected to highlight an improved outlook for the U.S. economy, with the index projected to increase to 52.4 from 51.9 in October.

What’s Expected:

DailyFX Calendar

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Why Is This Event Important:

Even though the Federal Open Market Committee (FOMC) is widely anticipated to deliver a December rate-hike, data prints pointing to stronger growth may encourage the central bank to further normalize monetary policy in early-2017 especially as the ‘Committee judges that the case for an increase in the federal funds rate has continued to strengthen.’ However, the permanent-voting members appear to be in no rush to implement higher borrowing-costs as Fed Governor Jerome Powell argues the central bank should ‘should downplay short-term tactical questions such as the timing of the next rate increase, and should focus the public's attention instead on the considerations that go into making policy across the range of plausible paths for the economy.'

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Personal Consumption (3Q P)

2.3%

2.8%

Durable Goods Orders (OCT P)

1.7%

4.8%

Advance Retail Sales (OCT)

0.6%

0.8%

The pickup in private-sector consumption – one of the leading drivers of growth and inflation – may push U.S. firms to boost production, and another uptick in business sentiment may trigger a bullish reaction in the dollar as it fuels bets for higher interest rates.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Advance Goods Trade Balance (OCT)

-$59.0B

-$62.0B

Wholesale Inventories (MoM) (OCT P)

0.2%

-0.4%

Capacity Utilization (OCT)

75.5%

75.3%

Nevertheless, narrowing inventories accompanied by the slowdown in global trade may drag on the ISM survey, and a dismal development may weigh on the greenback should the data print curb interest-rate expectations.

For More Updates, Join DailyFX Currency Analyst David Song for LIVE Analysis!

How To Trade This Event Risk(Video)

Bullish USD Trade: Gauge for U.S. Factory Output Climbs to 52.4 or Greater

  • Need red, five-minute candle following the ISM print to consider a short EUR/USD trade.
  • 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 cost; at least 1:1 risk-to-reward.
  • Move stop to entry on remaining position once initial target is met, set reasonable limit.

Bearish USD Trade: ISM Manufacturing Survey Fails to Meet Market Forecast

  • Need green, five-minute candle to favor a long EUR/USD position.
  • Implement same strategy as the bullish dollar trade, just in the opposite direction.

Potential Price Targets For The Release

EURUSD Daily

EUR/USD Daily Chart

Chart - Created Using Trading View

  • Even though the broader outlook for EUR/USD remains tilted to the downside, the pair may stage a larger recovery going into December as it carves an upward trending channel from the November low (1.0518), while the Relative Strength Index (RSI) comes off of oversold territory; the near-term developments may provide opportunities to sell-bounces in the exchange rate as a bearish-flag formation appears to be taking shape.
  • Interim Resistance: 1.0780 (100% expansion) to 1.0800 (23.6% retracement)
  • Interim Support: 1.0500 (50% expansion) to 1.0517 (December 2015-low)

Impact the ISM Manufacturing survey has had on EUR/USD during the last release

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

OCT

2016

11/01/2016 14:00 GMT

51.7

51.9

+19

+29

October 2016 U.S. ISM Manufacturing

EUR/USD 5-Minute

EUR/USD Chart

Chart - Created Using Trading View

The U.S. ISM Manufacturing survey continued to pick up in October, with the index advancing to 51.9 from 51.5 in September. A deeper look at the report showed the Employment component advancing to 52.9 from 49.7 in September, with the gauge for Prices Paid climbing to 54.5 from 53.0, while the proxy for New Orders narrowed to 52.1 from 55.1 during the same period. Despite the limited market reaction, the greenback struggled to hold its ground during the North American trade, with EUR/USD ending the day at 1.1055.

Get our top trading opportunities of 2016 HERE

Read More:

Dollar Technical Analysis: DXY Polarity Point in the Making

S&P 500 Technical Update: Levels & Lines to Consider

Canadian Dollar Recovery to Fizzle If OPEC Fails to Deliver

EUR/USD Rallies as French Confidence Remains High Ahead of Next Primaries

--- 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.

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