EUR/USD Faces Rebound On Dismal ISM Manufacturing
Dailyfx | Oct 01, 2014 08:30AM ET
A downtick in the ISM Manufacturing survey may generate a bearish dollar reaction (bullish EUR/USD) should the data print dampen the outlook for growth and inflation.
What’s Expected:
Why Is This Event Important:
At the same time, we will need to keep a close eye on the employment component as the highly anticipated Non-Farm Payrolls (NFP) report is expected to show the U.S. economy adding another 217K jobs in September, and a material downward revision in the key metrics may undermine the bullish sentiment surrounding the greenback as it drags on interest rate expectations.
Expectations: Bearish Argument/Scenario
|
Release |
Expected |
Actual |
|
Chicago Fed National Activity Index (AUG) |
0.33 |
-0.21 |
|
Industrial Production (MoM) (AUG) |
0.3% |
-0.1% |
|
Manufacturing Production (SIC) (AUG) |
0.1% |
-0.4% |
The dollar may face a near-term correction should the ongoing slack in the real economy spur a marked slowdown in manufacturing, and a dismal ISM print may prompt the Fed to further delay its normalization cycle as Chair Janet Yellen remains reluctant to move away from the zero-interest rate policy (ZIRP).
Risk: Bullish Argument/Scenario
|
Release |
Expected |
Actual |
|
Personal Spending (AUG) |
0.4% |
0.5% |
|
Advance Retail Sales (MoM) (AUG) |
0.6% |
0.6% |
|
Consumer Credit (JUL) |
$17.350B |
$26.006B |
Nevertheless, the resilience in private sector consumption may foster another unexpected uptick in the manufacturing survey, and a better-than-expected release may heighten the bullish sentiment surrounding the dollar as it raises the Fed’s scope to implement a rate hike sooner rather than later.
Bearish USD Trade: ISM Survey Narrows to 58.5 or Lower
- Need to see green, five-minute candle following the release to consider a long trade on EURUSD
- If market reaction favors a bearish dollar trade, buy EURUSD with two separate position
- Set stop at the near-by swing low/reasonable distance from entry; look for at least 1:1 risk-to-reward
- Move stop to entry on remaining position once initial target is hit; set reasonable limit
Get The News You Want
Bullish USD Trade: Manufacturing Unexpectedly Tops Market Forecast for Second Month
- Need green, five-minute candle to favor a short EURUSD trade
- Implement same setup as the bearish dollar trade, just in the opposite direction
Potential Price Targets For The Release
h2 EUR/USD Daily/h2- Remains vulnerable to a further decline as near-term bearish RSI momentum remains in play
- Interim Resistance: 1.3010 (50.0% retracement) to 1.3020 (23.6% expansion)
- Interim Support: 1.2450 (78.6% retracement) to 1.2500 pivot
Read More:
Price & Time: King Dollar
COT: US Dollar Speculator Long Position is Largest on Record
Impact that the U.S. ISM Manufacturing report has had on EUR/USD during the last release
|
Period |
Data Released |
Estimate |
Actual |
Pips Change (1 Hour post event ) |
Pips Change (End of Day post event) |
|
AUG 2014 |
9/02/2014 14:00 GMT |
57.0 |
59.0 |
-4 |
-2 |
August 2014 U.S. ISM Manufacturing
Manufacturing activity in the U.S. unexpectedly picked up in August as the ISM survey rose to 59.0 from July’s 57.1 print; reaching the highest level since March 2011. The expansion was fueled by a surge in orders for plastics and metals, and highlights the scope for a stronger U.S. recovery in the second half of the year. The market reaction to the positive ISM print was limited and short-lived as the EUR/USD chopped around 1.3128, with the pair closing the day at 1.3122.
Original post
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