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Waning ISM Non-Manufacturing Survey to Prop Up EUR/USD

Waning ISM Non-Manufacturing Survey to Prop Up EUR/USD

David Song, Strategist

- ISM Non-Manufacturing Survey to Narrow to Second Straight Month in June.

- Employment Component Climbed to 57.8 in May- Highest Reading Since 2015.

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

ISM Non-Manufacturing

A second consecutive decline in the ISM Non-Manufacturing survey may produce a bearish reaction in the U.S. dollar as waning business confidence dampens the outlook for growth and inflation.

Why Is This Event Important:

Mixed signals coming out of the U.S. economy may continue to complicate the Fed’s normalization cycle especially as the central bank struggles to achieve the 2% target for price growth. In turn, Chair Janet Yellen and Co. may try to buy more time at the next interest rate decision on July 26, and the central bank may look to unload the balance sheet in 2018 as ‘contacts at some large firms indicated that they had curtailed their capital spending, in part because of uncertainty about changes in fiscal and other government policies.’ Nevertheless, an unexpected pickup in the ISM survey may keep the FOMC on course to deliver three rate-hikes in 2017 as officials see the real economy expanding an annualized 2.2% this year.

Have a question about the currency markets? Join a Trading Q&A webinar and ask it live!

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)

MAY

2017

06/05/2017 14:00:00 GMT

57.1

56.9

+1

+6

May 2017 U.S. ISM Non-Manufacturing Survey

EUR/USD 10-Minute

EUR/USD Chart

The ISM Non-Manufacturing survey narrowed to 56.9 from 57.5 in April, while the employment component climbed to 57.8 from 51.4 during the same period to mark the highest reading since June 2015. A deeper look at the report showed the gauge for new orders slipped to a six-month low of 57.7 in May, with the Business Activity index highlighting a similar dynamic as it slipped to 60.7 from 62.4 in April. The mixed developments sparked a limited reaction in the greenback, with EUR/USD edging marginally higher during the North American trade to end the day at 1.1254.

How To Trade This Event Risk(Video)

Bearish USD Trade: Gauge for Service-Based Activity Narrows for Second Month

  • Need a green, five-minute candle following the print to consider a long EUR/USD trade.
  • If the market reaction favors a bearish dollar trade, buy EUR/USD with two separate lots.
  • Set stop at the near-by swing low/reasonable distance from entry; look for at least 1:1 risk-to-reward.
  • Move stop to breakeven on remaining position once initial target is met, set reasonable limit.

Bullish USD Trade: ISM Non-Manufacturing Survey Exceeds Market Expectations

  • Need a red, five-minute EUR/USD candle to favor a long dollar trade.
  • Carry out the same setup as the bearish dollar position, just in the opposite direction.

Potential Price Targets For The Release

EUR/USD Daily

EUR/USD Daily Chart

Chart - Created Using Trading View

  • Broader outlook for EUR/USD remains constructive as price & the Relative Strength Index (RSI) preserve the bullish formations from earlier this year, but the pair may face a near-term correction as it carves a fresh series of lower highs & lows, while the momentum indicator deviates from overbought territory.
  • A close below the 1.1330 (23.6% expansion) hurdle may trigger a move back towards 1.1290 (38.2% expansion), with the next downside region of interest coming in around 1.1210 (61.8% retracement) to 1.1230 (23.6% expansion).
  • Interim Resistance: 1.1616 (2016-high) to 1.1670 (78.6% expansion)
  • Interim Support: 1.0980 (50% retracement) to 1.1020 (50% expansion)

Make Sure to Check Out the DailyFX Guides for Additional Trading Ideas!

IG Sentiment

Retail trader data shows 27.4% of traders are net-long EUR/USD with the ratio of traders short to long at 2.66 to 1. In fact, traders have remained net-short since April 18 when EUR/USD traded near 1.06424; price has moved 6.6% higher since then. The number of traders net-long is 0.5% higher than yesterday and 27.9% higher from last week, while the number of traders net-short is 7.1% lower than yesterday and 4.6% lower from last week. For more information on retail sentiment, check out the new gauge developed by DailyFX based on trader positioning.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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