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Narrowing ISM Non-Manufacturing Survey to Keep EUR/USD Afloat

Narrowing ISM Non-Manufacturing Survey to Keep EUR/USD Afloat

2018-04-04 10:00:00
David Song, Strategist
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- U.S. ISM Non-Manufacturing Survey to Narrow for Second Straight Month to 59.0 from 59.5 in February.

- EUR/USD Continues to Consolidate Within the March Range, Relative Strength Index (RSI) Clings to Bullish Formation.

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

DailyFX Calendar

Another downtick in the ISM Non-Manufacturing survey may spark a rebound in EUR/USD as it undermines expectations for four Fed rate-hikes in 2018.

Signs of waning business confidence may drag on the greenback as it limits the Federal Open Market Committee’s (FOMC) scope to extend the hiking-cycle, and the central bank may stick to the sidelines at the next meeting in May as ‘recent data suggest that growth rates of household spending and business fixed investment have moderated from their strong fourth-quarter readings.’ In turn, Chairman Jerome Powell and Co may continue to forecast a neutral Fed Funds rate of 2.75% to 3.00% especially as the central bank struggles to achieve the 2% target for inflation.

Nevertheless, an above-forecast print may keep EUR/USD under pressure as it encourages the FOMC to further normalize monetary policy, and the central bank may adopt a more hawkish tone over the coming months as ‘inflation on a 12-month basis is expected to move up in coming months and to stabilize around the Committee's 2 percent objective over the medium term.’

Impact that the ISM Non-Manufacturing survey 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)

FEB

2018

03/05/2018 15:00:00 GMT

59.0

59.5

-3

+12

February 2018 U.S. ISM Non-Manufacturing

EUR/USD 5-Minute Chart

EUR/USD 5-Minute Chart

The ISM Non-Manufacturing survey slipped to 59.5 from 59.9 in January, with the weakness larger driven by a decline in the Employment component as the index tumbled to 55.0 from 61.6 during the same period. A deeper look at the report showed the gauge for New Orders climbing to 64.8 in February from 62.7 the month prior, with the index for New Export Orders also advancing to 59.5 from 58.0.

The mixed developments sparked a mixed reaction, with EUR/USD pulling back towards 1.2310, but the move was short-lived as the pair ended the day at 1.2336. 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!

EUR/USD Daily Chart

EUR/USD Daily Chart
  • Near-term outlook for EUR/USD remains clouded with mixed signals as the pair consolidates within the March range.
  • Need to keep a close eye on the Relative Strength Index (RSI) as it sits at trendline support, but a break of the upward trend raises the risk for a larger correction in EUR/USD as the bullish momentum abates.
  • Need a break/close below the 1.2230 (50% retracement) to see a run at the March-low (1.2155), which sits just above the 1.2140 (50% retracement) hurdle, with the next downside region of interest coming in around 1.1960 (38.2% retracement) to 1.1970 (23.6% expansion).

For more in-depth analysis, check out the Q2 Forecast for EUR/USD

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--- Written by David Song, Currency Analyst

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

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