• Services sector PMI forecast to recover but remain in contraction.
  • New orders index expected to fall far below April’s record low.
  • Manufacturing PMI registered small gains in May.
  • Dollar retreat on risk-trade reversal to continue.

Last month we asked if a plunge in the April purchasing managers’ indexes might ignite the risk-aversion trade to the US dollar which even then was showing signs of fatigue.

Since then the terrible accounting for closing the US economy in defense of the coronavirus pandemic has rolled on unabated. Unemployment, retail sales, personal spending, jobless claims and durable goods orders have set new definitions for economic disaster. 

Market response to pandemic accounting

The answer from the markets has been unambiguous.  Equities had their panic low on March 23 and the Dow has returned 60% and the S&P 500 40% since then.  

In early May the purchasing managers’ indexes in services and manufacturing for April were reported deep in contraction and the market verdict was unchanged.  

Manufacturing PMI

FXStreet

Since May 1 the Dow has added 5.6%, the S&P 500 6.5% and the yield on the 10-year Treasury has climbed slightly from 0.630% to 0.662%.

The dollar is a mixed bag on the month, down substantially against the Canadian and Australian dollars and the euro, slightly versus the Swiss franc and higher by insignificant amounts against the yen and the sterling.  

Specific movement is less important that the overall picture.  The cascade of horrendous economic data has not restarted the risk-aversion trade to the dollar.

May Services PMI

The purchasing managers’ index for May is forecast to rise to 44 from 41.8 in April. Employment is predicted to climb to 35.8 from 30 in April and business activity is expected to jump to 34 from 26.0.  Only the new orders index is projected to drop to 18.5 in May from 32.9 in April. 

Manufacturing indexes performed about as forecast in May. Overall PMI rose to 43.1 from 41.5, missing the 43.6 estimate. Employment climbed to 32.1 from 27.5 also lower than its 35 prediction and new orders edged up to 31.8 from 27.1.

Market reaction

Monday’s ISM report had no impact on market trends.

The dollar moved lower on Monday as the remaining pandemic-risk premium rapidly vanished.  The greenback was down on Monday against all the majors with the Canadian dollar scoring the largest gain, taking it to 1.3572, an 86% return of the March panic surge in the US dollar.  

American equities were up were up modestly in New York extending the recovery from the March low. The Dow added 91.91 points to 25.475.02 and the S&P 500 rose 11.42 points to 3,055.73. The Dow has recovered over 60% of its losses.  Treasury yields were higher with the 10-year adding two basis points to 0.662% and the 2-year closing flat at 0.158%

With services slated to duplicate the manufacturing slight improvement markets will keep their gaze fixed elsewhere.

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.

Analysis feed

FXStreet Trading Signals now available!

Access to real-time signals, community and guidance now!

Latest Analysis


Latest Forex Analysis

Editors’ Picks

EUR/USD hits fresh one-month low amid souring market mood

EUR/USD has been extending its falls and dips below 1.21 as US retail sales badly disappointed and the worsening mood is supporting the safe-haven dollar. Markets digest Biden's stimulus plan. US Consumer Sentiment declined to 59.2 points. 

EUR/USD News

GBP/USD retreats toward 1.36 amid fresh dollar strength

GBP/US has pared its gains and falls toward 1.36 as the dollar gains ground. The UK economy shrank by 2.6% in November, better than estimated. The UK is ramping up its vaccination campaign and PM Johnson is pressured to ease the lockdown. 

GBP/USD News

Gold extends sideways grind near $1,850

The XAU/USD pair registered small daily gains on Thursday but struggled to extend its recovery amid a lack of significant fundamental drivers on Friday. As of writing, the pair was up 0.15% on a daily basis at $1,849.

Gold news

Forex Today: Markets “sell the fact” on Biden's stimulus, dollar rises, retail sales eyed

Markets are on the back foot after Biden hinted about tax hikes while introducing stimulus. The safe-haven dollar is edging higher despite Powell's pledge to keep monetary policy accommodative. 

Read more

DXY breaks above key downtrend, eyes move above 91.00

USD has been strongly supported on what has shaped up to be a very much risk off final trading day of the week. Most G10/USD pairs have seen significant weakness, aside from CHF/USD and JPY/USD, given that the two currencies are also considered “safe havens”.

US Dollar Index News

Forex Majors

Cryptocurrencies

Signatures