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Lackluster ISM Survey Stands Little Chance of Derailing EUR/USD Losses

Lackluster ISM Survey Stands Little Chance of Derailing EUR/USD Losses

David Song, Strategist

- U.S. ISM Manufacturing Survey to Narrow for Second Straight Month in February. Employment Component Has Contract the Last Two Months.

- Fed Fund Futures Highlight Bets for March Rate-Hike. EUR/USD Rate Carves Bearish Sequence Going Into March.

Trading the News: U.S. ISM Manufacturing

DailyFX Calendar

A minor downward revision in the U.S. ISM Manufacturing survey may do little to curb the recent decline in EUR/USD as the Federal Open Market Committee (FOMC) appears to be on course to deliver a March rate-hike.

Fed Fund Futures

The U.S. dollar remains bid following the testimony from Chairman Jerome Powell, and the greenback may stage a larger recovery over the coming days as Fed Fund Futures now highlight a greater than 80% probability for a March rate-hike.

Governor Powell and Co. may continue to cast a hawkish outlook for monetary policy as ‘headwinds the U.S. economy faced in previous years have turned into tailwinds,’ and the bar appears high for the FOMC to slow down its hiking-cycle as officials ‘anticipate that inflation on a 12-month basis will move up this year and stabilize around the FOMC's 2 percent objective over the medium term.

At the same time, a clear deviation from market expectations may fuel the recent depreciation in EUR/USD as it fosters speculation for four Fed rate-hikes in 2018.

Impact that the U.S. 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

2018

02/01/2018 15:00:00 GMT

58.6

59.1

+23

+66

January 2018 ISM Manufacturing

EUR/USD 5-Minute Chart

EUR/USD 5-Minute Chart

The ISM Manufacturing survey was little changed in January, with the index narrowing to 59.1 from a revised 59.3 in December 2017. A deeper look at the report showed the Employment component slipping to 54.2 from a 58.1, with the gauge for New Orders falling to 65.4 from 67.4, while the index for Prices Paid climbed to 72.7 from 68.3 during the same period to mark the highest reading since May 2011.

The minor revisions to the business confidence survey generated a limited reaction, with EUR/USD largely gaining ground throughout the day to close at 1.2508. New to the FX market? Want a better understanding of the different approaches for trading? Start by unlocking the FREE DailyFX Beginners guide!

EUR/USD Daily Chart

EUR/USD Daily Chart

Interested in having a broader discussion on current market themes? Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups!

  • Downside targets are on the radar for EUR/USD as the pair now snaps the February range, with the near-term outlook capped by the 1.2320 (23.6% retracement) to 1.2370 (61.8% expansion) region.
  • Next area of interest coming in around 1.2130 (50% retracement) followed by the 1.1960 (38.2% retracement) to 1.1970 (23.6% expansion) region, which sits just below the 100-Day SMA (1.1987).
  • Keeping a close eye on the Relative Strength Index (RSI) as it extends the bearish formation from earlier this month and appears to be making its way towards oversold territory.

Are you looking to improve your trading approach? Review the ‘Traits of a Successful Trader’ series on how to effectively use leverage along with other best practices that any trader can follow.

--- 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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