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Lackluster ISM Manufacturing Survey to Keep EUR/USD Rate Afloat

Lackluster ISM Manufacturing Survey to Keep EUR/USD Rate Afloat

David Song, Strategist

- ISM Manufacturing Survey to Slip to 58.6 from 59.7 in December.

- Employment Component has Narrowed for Last Three Months; Currently Sits at 57.0.

Trading the News: ISM Manufacturing

ISM Manufacturing

A downtick in the ISM Manufacturing survey may spark a bearish reaction in the U.S. dollar as it dampens the Federal Open Market Committee’s (FOMC) scope to implement three rate-hikes in 2018.

A batch of dismal developments may push the Fed to projected a more shallow path for the benchmark interest rate especially as the central bank struggles to achieve the 2% target for inflation. In turn, the FOMC may merely attempt to buy more time at its next meeting in March as the committee notes ‘market-based measures of inflation compensation have increased in recent months but remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.

However, another unexpected uptick in U.S. business sentiment may fuel the recent pullback in EUR/USD as it boosts bets for an imminent Fed rate-hike, with the pair at risk of facing a near-term correction as the rally from the November-low (1.1554) appears to be getting exhausted. New to trading? Review the ‘Traits of a Successful Trader’ series on how to effectively use leverage along with other best practices that any trader can follow.

Impact that the ISM Manufacturing survey has had on EUR/USD during the previous print

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

DEC

2017

01/03/2018 15:00 GMT

58.2

59.7

+4

-3

December 2017 ISM Manufacturing

EUR/USD 10-Minute Chart

EUR/USD 10-Minute Chart

The ISM Manufacturing survey unexpectedly bounced back in December, with the index climbing to 59.3 from 58.2 the month prior. A deeper look at the report showed the gauge for New Orders increasing to 69.4 from 64.0 in November, with the Production index advancing to 65.8 from 63.9, while the Employment component narrowed to 57.0 from 59.7 during the same period.

The initial market reaction was short-lived, with EUR/USD consolidating throughout the day to close at 1.2014. For additional resources, download and review the FREE DailyFX Advanced Guide for Trading the News to learn our 8 step strategy.

EUR/USD Daily Chart

EUR/USD Daily Chart

Want to know what other currency pairs the DailyFX team is watching? Download and review the Top Trading Opportunities for 2018.

  • Broader outlook for EUR/USD remains tilted to the topside as both price and the Relative Strength Index (RSI) continue to track the upward trends from late last year, but the bullish momentum appears to be abating as the oscillator flattens out, with the indicator at risk of flashing a textbook sell-signal if it slips below 70.
  • The string of failed attempts to close above the 1.2430 (50% expansion) hurdle raises the risk for a larger pullback, with the first downside area of interest coming in around 1.2230 (50% retracement) followed by the 1.2130 (50% retracement) region.

--- 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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