U.S. ISM Non-Manufacturing Tops Forecast, Spurs Risk-Taking Behavior
THE TAKEWAY: U.S. Service-Based Activity Slows Less-Than-Expected > Raises Outlook For Growth > Spurs Risk-Taking Behavior
The ISM Non-Manufacturing index fell back to 53.0 in September from 53.3 in the previous month, which exceeded forecasts for a 52.8 print, but the breakdown of the report casts a weakened outlook for the world’s largest economy as it reinforces a weakened outlook for private sector activity. Indeed, the U.S. dollar lost ground following the report as the positive development raise risk-taking behavior, but the rebound in market sentiment is likely to be short-lived as the fundamental outlook for the world economy remains deteriorates.
A deeper look at the report showed the business activity index advancing to 57.1 from 55.6 in the previous month, with the gauge for new orders increasing to 56.5 from 52.8, while the employment component fell back to 48.7 from 51.6 to mark the first contraction since August 2010. The report instills a weakened outlook for Friday’s Non-Farm Payrolls report as we’re expected to see a protracted recovery in the labor market, and the slowing recovery in the world’s largest economy may weigh on risk-taking behavior as the outlook for global growth falters.
The EUR/USD pushed back above 1.3300 following the better-than-expected ISM report, but the single-currency may trade heavy over the next 24-hours of trading as the European Central Bank is widely expected to lower the benchmark interest rate by 25bp. In turn, the recent rebound in the euro-dollar is likely to be short-lived, and we may see the exchange rate make another run at the 38.2% Fibonacci retracement from the 2009 high to the 2010 low around 1.3100 as it searches for support. However, the EUR/USD may threaten the rebound from earlier this year (1.2873) should the ECB show an increased willingness to expand its nonstandard measures, and the single-currency may ultimately give back the advance from the previous year as the fundamental outlook for Europe deteriorates.
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