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USD/CAD & USD/JPY Jump as US Dollar Gains on Upbeat Services PMI

USD/CAD & USD/JPY Jump as US Dollar Gains on Upbeat Services PMI

2020-01-07 15:46:00
Thomas Westwater, Contributor
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US Dollar Rises on strong ism services pmi – talking points

  • The services sector rose for December with a reading of 55.0, up from last month’s reading of 53.9 and beating expectations of 54.5
  • USD/CAD climbed to session highs after the solid US services sector datapoint as uncertainty around geopolitical tension in the Middle East fades
  • DailyFX Forecasts are published on a variety of markets such as Gold, the US Dollar or the Euro and are available from the DailyFX Trading Guides page. If you’re looking to improve your trading approach, check out Traits of Successful Traders. And if you’re looking for an introductory primer to the Forex market, check out our New to FX Guide.

The Institute for Supply Managementreleased their monthly report on the US services sector Tuesday morning with the headline figure for December crossing the wires with a reading of 55.0. The latest ISM Services PMI reading topped consensus estimates of 54.5 and is higher than the prior period’s reading of 53.9. This contrasts the ISM Manufacturing PMI released last week, which contracted for its fifth consecutive month.

USD price action jumped to session highs immediately following the ISM Services PMI report which pushed the US Dollar Index (DXY) back above the 97.00 handle. Spot USD/CAD saw a notable spike higher subsequent to the ISM Services PMI report release and helped this major currency pair reclaim the 1.3000 price level.

USD/CAD MIXED
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Change in Longs Shorts OI
Daily -6% -7% -6%
Weekly -11% -1% -9%
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The overall healthy ISM Services PMI report for December exacerbated upside in spot USD/CAD price action recorded earlier in today’s trading session likely driven by simmering geopolitical tension in the Middle East and risk of a full-blown war between the US and Iran.

USDCAD Index (3-Min Chart)

USDCAD 3 min price chart

The recent lull in US-China trade tensions and increasing likelihood that the two sides will make a tangible step forward with the long-awaited signing of a phase one trade agreement, which appears to be having a positive impact on the ISM Services PMI.

Strength in December’s Services sector was broad with business activity, employment, new orders and inventory all picking up in December with business activity making the largest gain over the previous month.However, respondents in the survey are not seeing the same amount of business activity compared to the same period in the previous year.

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In fact, one respondent noted how "overall business is down from this time last year, but sales have increased over the last month, causing more buys with our suppliers."Though the upbeat services side of the US economy is taminglingering concerns that a manufacturing downturn will spill over into services.

ISM Services PMI vs Employment Index

A key theme that traders should pay close attention to as 2020 progresses is the robustness of the US labor market. Employment continues to grow in across the services sector, but the pace of growth has trended lower over recent months. On that note, the monthly change in US Nonfarm Payrolls (NFP) will be released this Friday, January 10 at 13:30 GMT according to the DailyFX Economic Calendar.

--Written by Thomas Westwater, Intern Analyst for DailyFX.com

Contact and follow Thomas on Twitter @FxWestwater

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

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