|

ISM Non-Manufacturing PMI may disappoint and weigh on the dollar – FXStreet Surprise Index

  • The US ISM Non-Manufacturing PMI is a critical leading indicator.
  • FXStreet's Surprise Index points to a downside surprise.
  • The US dollar may lose ground on the news.

Will the Federal Reserve cut interest rates in September? That is the main question currency traders are asking and the answer – as the Fed puts it – depends on the data. As the central bank tries to gauge future developments, ISM's forward-looking Purchasing Managers' Index for the services sector – America's largest – is a critical figure.

FXStreet Surprise Index quantifies, in terms of standard deviations of data surprises (actual releases vs. survey median), the extent to which economic indicators exceed or fall short of consensus estimates.

Examining US data since 2011, we can see how upside surprises became more frequent in early 2019, but that was short-lived. Since then, figures came returned to hovering around the middle-ground of surprises.

Moreover, we can draw a downtrend resistance line from the peak early in the year and see that the recent upside swing has failed to challenge the line – a bearish signal that implies further downfalls.

Also, downside surprises have been becoming less worse – higher lows on the chart. Also here, we can draw a trendline. The index has significant room to fall in order to challenge this uptrend support line – another bearish sign.

ISM Non Manufacturing PMI surprise index August 5 2019

We will now take a closer look at FXStreet's Surprise Index, with data dating back only to early 2018. Also here, an uptrend support line can be spotted and there is considerable room to fall in order to challenge it.

However, we examine a noteworthy difference on the upside. The chart clearly shows that upside surprises were rejected at the downtrend resistance line – the indicator will, therefore, have a hard time to recover from the recent blow.

ISM Non Manufacturing PMI surprise index August 5 2019 short term

Overall, FXStreet's Surprise Index is pointing to higher chance of a downside surprise than an upside one. 

The economic calendar is showing that the consensus of economists is for the ISM Non-Manufacturing PMI to rise to 55.5 points in the upcoming report for July after 55.1 in June. 

A potentailly disappointing outcome such as a score of 55 points or lower will indicate a slowdown in America's largest sector, raising expectations for the central bank to cut the interest rate. In this scenario, the US dollar has room to decline against its peers. 

Author

Yohay Elam

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

More from Yohay Elam
Share:

Editor's Picks

EUR/USD eases marginally, back to 1.1800

EUR/USD navigates a narrow range on Thursday, hovering around the 1.1800 neighbourhood in a context of humble gains in the US Dollar. The pair’s lacklustre performance come amid the unabated trade uncertainty, geopolitical tensions in the Middle East and the cautious tone from the ECB’s Lagarde.

GBP/USD retreats from tops, approaching 1.3540

GBP/USD partially sets aside Wednesday’s strong advance and recedes to the 1.3540 region on Thursday. Cable’s modest retracement follows the equally acceptable gains in the Greenback, while investors continue to pencil in a potential BoE rate cut in March.

Gold clings to gains just below $5,200, focus on geopolitics

Gold is edging modestly higher on Thursday, adding to Wednesday’s uptick and holding just below the $5,200 mark per troy ounce against the backdrop of modest gains in the US Dollar. In the meantime, attention is turning to the geopolitical scenario following US-Iran nuclear talks.

Stellar: Relief bounce fades as bearish undertone persists

Stellar is trading around $0.16 at the time of writing on Thursday after rebounding more than 8% in the previous day. Derivatives data paints a negative picture as XLM’s short bets hit a monthly high while Open Interest continues to decline.

The one thing everyone is on the lookout for is US action of some sort against Iran

The FX market is minestrone soup these days. It is befuddled by conflicting data, rumors and small stories exaggerated out of proportion, and Trump-generated uncertainty. 

Bitcoin steadies as traders eye US–Iran talks

Bitcoin (BTC) price is stabilizing around $68,000 at the time of writing on Thursday after a 6.2% relief rally the previous day amid a broader downward trend.