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Debt Ceiling Rally Reverses As ISM Data Underperforms

Debt Ceiling Rally Reverses As ISM Data Underperforms

2011-08-01 09:38:00
Christopher Vecchio, CFA, Senior Strategist
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THE TAKEAWAY: U.S. ISM Manufacturing Underperforms > Debt Deal Rally Dies and Reverses> USDollar Index Bullish

Manufacturing grew in July at the same pace as a month earlier showing that overseas sales are shielding U.S. factories from an economic slowdown. The Institute of Supply Management’s manufacturing index fell to 54.5 for the month of July while economists forecasted a reading of 55.3.

The data was bolstered by sustained demand from emerging nations which drove orders and production at domestic factories. This increase in foreign sales offset the large, recent decrease in consumer spending. Reports released last week showed that consumer spending rose at a .1 percent pace for the second quarter of this year, the slowest increase since Q2 2009.

Dollar-Loonie 1-minute Chart: August 1, 2011

Debt_Ceiling_Rally_Reverses_As_ISM_Data_Underperforms_body_Picture_4.png, Debt Ceiling Rally Reverses As ISM Data Underperforms

Charts created using Strategy Trader– Prepared by Christopher Vecchio

US Dollar appreciated significantly on the news as the rally in global markets brought on by the closure of the US Congressional debt ceiling fight died down and even began to reverse. With attention taken away from US debt, investors and traders began to focus on other problems in the world namely, the potential slowdown of the global economic recovery. Today’s weak ISM number reflected poor manufacturing data out of the United States which has often been a leading indicator of rough economic conditions. As such, money flowed into the safe haven assets once the data was released and with the debt ceiling fight all but done, the USD appreciated once more as it has regained its status as a safe haven asset.

U.S. ISM Manufacturing: July 2008 to Present

Debt_Ceiling_Rally_Reverses_As_ISM_Data_Underperforms_body_Picture_1.png, Debt Ceiling Rally Reverses As ISM Data Underperforms

Courtesy: Bloomberg

Following the release, the Dow Jones FXCM Dollar Index greatly increased. At the time of the release, it was trading at roughly 9363.90 and at the time of this writing, it is trading at 9419.89.

Written by Christopher Vecchio, Currency Analyst

To contact the author of this report or be added to his distribution list, please send inquiries to: cvecchio@dailyfx.com

Follow Christopher Vecchio on Twitter: @CVecchioFX

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

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