U.S. Dollar Drops as ISM Manufacturing Falls But Beats Expectations
THE TAKEAWAY: U.S. ISM Manufacturing Surprises > Sector Continues Expansion > USDollar Index Falls
Risk rallied after a report today issued by the Institute for Supply Management showed that manufacturing in the United States did not fall as much as expected. The ISM’s manufacturing index dropped to 50.6 in August from 50.9 in July, though it remained above the 48.5 median forecast, according to a Bloomberg News survey. Earlier today, similar indexes showed that manufacturing entered a cycle of contraction in Europe, while the Chinese reading was near its lowest reading in 29 months.
USD/CAD 1-minute Chart: September 1, 2011
Charts created using Strategy Trader– Prepared by Christopher Vecchio
Following the release, the USD/CAD pair initially moved lower, dropping by approximately 20-pips, before rallying by 30-pips. At the time this report was written, the USD/CAD had begun to fall once more, as markets took the data favorably despite some significantly discouraging figures within the report.
A closer look at the data necessarily suggests that market participants are frantically looking for reasons to be optimistic about the economy. The actual print beat expectations, but the reading still showed that the ISM’s factory index fell from July. Among the components of the report, the employment, exports and production segments slid further into a state of contraction.
With the employment component falling, as well as worse-than-expected ADP employment figures from yesterday, tomorrow’s nonfarm payrolls print could easily surprise to the downside.
Written by Christopher Vecchio, Currency Analyst
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