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US Dollar Price Volatility Report: ISM Services PMI Eyed

US Dollar Price Volatility Report: ISM Services PMI Eyed

2019-11-05 00:41:00
Rich Dvorak, Analyst
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US DOLLAR OUTLOOK HINGES ON ISM SERVICES/NON-MANUFACTURING PMI REPORT:

  • The US Dollar climbed higher during Monday’s trading session as the DXY Index bounced off a major confluent support level, but the greenback’s rebound could be short-lived
  • USD price action shifts focus to the October ISM Services/Non-Manufacturing PMI report release due Tuesday at 14:00 GMT and forex traders’ reaction to FOMC rate cut odds
  • Enhance your market knowledge with our free Forecasts & Trading Guides available for download

US Dollar bulls were likely relieved when the world’s reserve currency churned higher off a critical support level which, if breached, could have seriously damaged the technical backdrop on the DXY Index. The USD rebound throughout Monday trade was widespread with the greenback strengthening considerably when looking at AUD/USD, NZD/USD, GBP/USD and EUR/USD which all edged lower by at least 0.35% while USD/JPY jumped roughly 0.40%.

While the bounce-back in the US Dollar could be partly explained by technicals, fundamental forces like an overall healthyNFP report and firming FOMC language revealed in the press statement accompanyinglast week’s Fed rate cut could be providing USD price action with positive tailwinds. That said, the release of high-impact economic data – like the ISM Services/Non-Manufacturing PMI report Tuesday at 14:00 GMT – could offer the US Dollar another fundamental catalyst that either further fuels or reverses the greenback’s ongoing rebound attempt.

US DOLLAR INDEX PRICE CHART: WEEKLY TIME FRAME (MAY 22, 2017 TO NOVEMBER 04, 2019)

US Dollar Index Price Chart Technical Analysis

Chart created by @RichDvorakFX with TradingView

I pointed out in the US Dollar Price Volatility Report published this past Friday that recent downside in the US Dollar – specifically the DXY Index – was underscored by a bearish engulfing candlestick on a weekly chart. The major area of confluent support around the 97.00 handle, which is underpinned by the US Dollar’s 200-week simple moving average and 23.6% Fibonacci retracement level of its trading range since 2018, was also noted along with its potential to buoy the US Dollar. With USD price action rebounding to kick off the week, however, the 50-week SMA and support-turned-resistance at the 98.00 price level could pose as major upside obstacles that is likely to thwart upside attempts.

ISM SERVICES/NON-MANUFACTURING PMI

ISM Services PMI Non Manufacturing Chart of Historical Data

The ISM Services/Non-Manufacturing PMI report is on deck for release and expected to cross the wires at 53.5, which would be a marginal improvement across the services sector judging by October’s reading of 52.6. Considering that services comprises roughly 80% of the US economy, it will likely carry greater weight than the disappointing ISM Manufacturing PMI report released last week. Further deterioration in the ISM Services PMI could reignite recession fears (USD bullish) but also fuel FOMC rate cut bets (USD bearish).

FOMC RATE CUT EXPECTATIONS (DECEMBER 2019)

FOMC Rate Cut Probability December 2019 Chart

According to overnight swaps, there is an 87.3% probability that the Federal Reserve leaves its target Fed funds rate (FFR) range unchanged at 1.50-1.75% into year-end. There is currently a 12.7% probability priced in that the FOMC cuts rates by 25-basis points for a fourth consecutive meeting next month.

US DOLLAR IMPLIED VOLATILITY & TRADING RANGES (OVERNIGHT)

USD Price Chart of US Dollar Implied Volatility Trading Ranges

Read More – Australian Dollar (AUD): RBA Meeting Preview & Aussie Outlook

-- Written by Rich Dvorak, Junior Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight

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