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EUR/USD Struggles at 1.0600 Hurdle Ahead of ISM Manufacturing Survey

EUR/USD Struggles at 1.0600 Hurdle Ahead of ISM Manufacturing Survey

David Song, Strategist

- U.S. ISM Manufacturing Survey to Increase for Sixth Consecutive Month.

- Reading of 56.2 Will Mark Highest Reading Since November 2014.

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

Trading the News: U.S. ISM Manufacturing

Another pickup in the ISM Manufacturing survey may garner an improved outlook for the U.S. economy and spark a bullish reaction in the dollar as it puts pressure on the Federal Open Market Committee (FOMC) to normalize monetary policy sooner rather than later.

What’s Expected:

DailyFX Calendar

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Why Is This Event Important:

Even though Fed Fund Futures continue to reflect limited expectations for a March rate-hike, signs of stronger growth may push central bank officials to adopt a more hawkish tone in 2017 especially as the U.S. economy approaches ‘full-employment.’ However, Chair Janet Yellen appears to be in no rush to remove the highly accommodative policy stance as ‘Market-based measures of inflation compensation remain low; most survey-based measures of longer-term inflation expectations are little changed, on balance,’ and the FOMC may try to buy more time as the central bank head argues ‘inflation moved up over the past year, mainly because of the diminishing effects of the earlier declines in energy prices and import prices.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Existing Home Sales (MoM) (JAN)

1.1%

3.3%

Building Permits (MoM) (JAN)

0.2%

4.6%

NFIB Small Business Optimism (JAN)

105.0

105.9

Improved business confidence accompanied by the ongoing expansion in the housing market may generate another uptick in the ISM Manufacturing survey, and a positive development may heighten the appeal of the U.S. dollar as it boosts interest-rate expectations.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Gross Domestic Product (Annualized) (4Q P)

2.1%

1.9%

Advance Goods Trade Balance (JAN)

-$66.0B

-$69.2B

Durable Goods Orders ex. Transportation (JAN P)

0.5%

-0.2%

Nevertheless, narrowing demand for large ticket-items paired with the widening trade deficit may drag on business sentiment, and a weaker-than-expected print may produce near-term headwinds for the greenback as it encourages the FOMC to preserve a wait-and-see approach at the next interest rate decision on March 15.

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

How To Trade This Event Risk(Video)

Bullish USD Trade: ISM Manufacturing Expands for Six Straight Months

  • Need red, five-minute candle following the ISM print to consider a short EUR/USD position.
  • 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: Business Sentiment Falters in February

  • 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

EUR/USD Daily

EUR/USD Daily Chart

Chart - Created Using Trading View

  • EUR/USD may continue to retrace the decline from earlier this month as it appears to be breaking out of the downward trending channel, with the Relative Strength Index (RSI) highlighting a similar dynamic, but the series of failed attempts to close above the 1.0600 (23.6% expansion) hurdle may spur a move back towards the February low (1.0494), with the broader outlook tilted to the downside amid the deviating paths for monetary policy.
  • Interim Resistance: 1.0880 (61.8% expansion) to 1.0910 (38.2% expansion)
  • Interim Support: 1.0340 (2017-low) and 1.0370 (38.2% expansion)

If you’re looking for trading ideas, check out our Trading Guides.

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)

JAN

2017

02/01/2017 15:00 GMT

55.0

56.0

-3

+10

January 2017 U.S. ISM Manufacturing

EUR/USD 5-Minute

EUR/USD Chart

The ISM Manufacturing survey climbed to 56.0 from a revised 54.5 in December to mark the highest reading since 2014. A deeper look at the report showed the Employment component advancing to 565.1 from 52.8 during the same period, with the gauge for Production climbing to 61.4 from 59.4, while New Export Orders narrowed to 54.5 from 56.0 in December. Despite the better-than-expected ISM print, the market reaction was short-lived, with EUR/USD bouncing back from 1.0736 to end the day at 1.0768.

Read More:

Euro Unmoved by Upbeat Data as Politics and Trump Grab Traders’ Attention

Silver Price Squaring Off with Notable Resistance

Technical Weekly: USD/JPY - Just a Dip?

Gold Prices March into Fresh 2017 Highs- Fed Outlook in Focus

--- 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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