ISM Services PMI Preview: Downside surprise could trigger US Dollar buying opportunity

• Economists expect the ISM Services PMI to slip to 53.6 points, still reflecting moderate growth.
• Recent patterns imply a greater miss in the data for America's largest sector.
• Without a drop under 50, the US Dollar will likely emerge as winner after the initial drop.

What goes up must come down – that adage has been relevant to the ISM Services Purchasing Managers' Index (PMI) in the past six months, with data zigzagging between beats and misses. Even if this forward-looking indicator misses estimates in the release for September, any US Dollar selling will likely be temporary.

Here is a preview of the ISM Services PMI, due on Wednesday at 14:00 GMT. 

ISM Services PMI recent developments and market impact

Services consist of the vast majority of the US economy, the world's largest, and this survey of purchasing managers serves as a leading indicator of economic activity in the sector. It is also a hint for Friday's all-important Nonfarm Payrolls. 

In recent months, Federal Reserve (Fed) officials have been beating the drum of data dependency – and investors have been reacting to every economic figure, whether it is hard data or soft data, such as the ISM Services PMI survey.

The sector has been growing at a satisfactory pace in  the past year. According to ISM, expansion – or a score above 50 – was seen in 11 out of 12 months, but this does not mean stability. Economists struggled to follow the twists and turns in the sector. 

ISM Services PMI. Source: FXStreet

Data has been bouncing between beats and misses in the past few months. After exceeding estimates in August, a disappointing figure for September would continue this pattern. Expectations are relatively modest – a score of 53.6 from. 54.5 in August. 

If the pattern fails to hold and ISM Services PMI beats estimates, the trend of US Dollar strength will likely extend. The economy is doing well, and investors fear the Federal Reserve's hawkish intentions. 

Assuming the zig-zag pattern holds, there is room for limited US Dollar selling. Unless America's largest sector slips into contraction according to this indicator, any dip in the Greenback could prove a buying opportunity. The world's largest economy leads a globe that is struggling to expand. 

For Gold and stocks, a small miss would serve as a selling opportunity. 

Final thoughts

The ISM Services PMI is the last significant indicator before the Nonfarm Payrolls – and a substantial market mover when published after the jobs report. It is set to rock markets, and unless the outcome is a disaster – highly unlikely given recent US economic strength – a "buy the dip" opportunity on the Greenback is likely.