Dull ISM Non-Manufacturing Survey to Dampen USD & Fed Outlook
- U.S. ISM Non-Manufacturing Survey to Narrow from Highest Reading Since 2015.
- Employment Component has Increased for Last Two Consecutive Months.
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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.
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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
|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
|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.
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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
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||Pips Change|
|03/3/2017 15:00 GMT||56.5||57.6||-2||+63|
February 2017 ISM Non-Manufacturing
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.
--- Written by David Song, Currency Analyst
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