EUR/USD: Trading the US ISM Non-Manufacturing PMI

The US ISM Non-Manufacturing PMI (Purchasing Managers’ Index) is based on a survey of purchasing managers, excluding those in the manufacturing sector.
Respondents are surveyed for their views on the services sector in the US. A reading which is higher than the market forecast is bullish for the dollar.

 

Indicator Background

Analysts are always interested in the views of purchase managers about the economy, as they are considered to be attuned to the latest economic and financial developments. Thus, PMI readings are quite important, and an unexpected reading (higher or lower than the forecast) could affect the movement of EUR/USD.

The July report dipped to 55.5 points, short of the forecast of 56.0. Still, this reading points to solid expansion in the services sector. Little change is expected in the August release.

Sentiments and levels

The ECB is far from achieving its inflation target and keeping pressure on the euro is essential to raising inflation levels. Any hints of future easing would likely push the euro lower. Over in the US, the Fed is expected to move in the opposite direction, with a rate hike a strong possibility in December. So, the overall sentiment is bearish on EUR/USD towards this release.

Technical levels, from top to bottom: 1.1335, 1.1230, 1.1190, 1.1125, 1.1070 and 1.10.

5 Scenarios

1. Within expectations: 52.0 to 59.0: In such a case, EUR/USD is likely to rise within range, with a small chance of breaking higher.

2. Above expectations: 59.1 to 63.0: An unexpected higher reading can send the pair below one support level.

3. Well above expectations: Above 63.0: A sharp jump by the PMI could push EUR/USD downwards, and a second support level might be broken as a result.

4. Below expectations: 48.0 to 51.9: A weak reading could push the pair upwards and break one resistance line.

5. Well below expectations: Below 48.0: A sharp contraction by the index would indicate significant contraction in the services sector. This could push the pair higher, possibly breaking a second resistance line.