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Dull ISM Non-Manufacturing Survey to Dampen USD & Fed Outlook

Dull ISM Non-Manufacturing Survey to Dampen USD & Fed Outlook

2017-04-05 10:00:00
David Song, Currency Strategist
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- U.S. ISM Non-Manufacturing Survey to Narrow from Highest Reading Since 2015.

- Employment Component has Increased for Last Two Consecutive Months.

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

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

A downtick in the ISM Non-Manufacturing survey may drag on the U.S. dollar as it dampens the outlook for growth and inflation, but another unexpected uptick in business sentiment may put increased pressure on the Federal Open Market Committee (FOMC) to raise the benchmark interest rate sooner rather than later.

What’s Expected:

DailyFX Calendar

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Why Is This Event Important:

With Fed Fund Futures still pricing a less than 60% probability for a June rate-hike, data prints pointing to slower growth may encourage the FOMC to endorse a wait-and-see approach throughout the first-half of the year, and the dollar stands at risk of facing headwinds over the near-term as market participants mull the scope for three rate-hikes in 2017. Nevertheless, with a growing number of central bank officials showing a greater willingness to adjust the Fed’s balance sheet, it seems as though Chair Janet Yellen will stay on course to further normalize monetary policy especially as the U.S. economy approaches ‘full-employment.’

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Real Personal Spending (FEB)

0.1%

-0.1%

Advance Retail Sales (MoM) (FEB)

0.1%

0.1%

Consumer Credit (JAN)

$17.250B

$8.794B

The slowdown in private-sector consumption may drag on business sentiment as it remains one of the leading drivers of U.S. growth, and a marked downtick in the ISM survey may produce headwinds for the greenback as market participants push out bets for the next Fed rate-hike.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Pending Home Sales (MoM) (FEB)

2.5%

5.5%

Housing Starts (MoM) (FEB)

1.4%

3.0%

Non-Farm Payrolls (FEB)

200K

235K

Nevertheless, the ongoing improvement in the labor market paired with the pickup in housing market activity may instill an improved outlook for service-based activity, and another uptick in the ISM survey may spark a bullish reaction in the dollar as it boosts interest-rate expectations.

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

How To Trade This Event Risk(Video)

Bearish USD Trade: ISM Non-Manufacturing Survey Narrows to 57.0 or Lower

  • Need green, five-minute candle following the print to consider a long EUR/USD position.
  • 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 Service-Based Activity Unexpectedly Improves

  • Need red, five-minute candle to favor a short EUR/USD position.
  • Implement same strategy as the bearish dollar trade, just in reverse.

Potential Price Targets For The Release

EUR/USD Daily

EUR/USD Daily Chart

Chart - Created Using Trading View

  • Failure to break the bearish trend from 2016 keeps the broader outlook for EUR/USD tilted to the downside, with the pair risk of facing a further decline over the days ahead as the Relative Strength Index (RSI) threatens the recovery from November; failure to hold trendline support may highlight a bearish trigger for the euro-dollar exchange rate, with the next downside hurdle coming in around 1.0600 (23.6% expansion) followed by the Fibonacci overlap around 1.0470 (38.2% expansion) to 1.0500 (50% expansion).
  • 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 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)

FEB

2017

03/3/2017 15:00 GMT

56.5

57.6

-2

+63

February 2017 ISM Non-Manufacturing

EUR/USD 5-Minute

EUR/USD Chart

The ISM Non-Manufacturing survey unexpectedly picked up in February, with the gauge climbing to 57.6 from 56.5 the month prior to mark the highest reading since October 2015. A deeper look at the report showed the gauge for New Orders advance to 61.2 from 58.6 in January, with the Employment component highlight a similar behavior as the reading climbed to 55.2 from 54.7, while the Prices Paid index narrowed to 57.7 from 59.0 during the same period. Despite the better-than-expected print, the ISM survey generate a muted reaction, with EUR/USD ticking higher throughout the North American trade to close the day at 1.0621.

Read More:

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Technical Weekly: GBP/USD - Setting the Table for Cable

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Silver Price Makes It Nine in a Row, Turning Lower off July Trend-line

Crude Oil Price Forecast: Oil To 200DMA On Libya’s Force Majure Claim

--- 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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