US ISM Manufacturing PMI overview

The Institute of Supply Management (ISM) will release its latest manufacturing business survey result, also known as the ISM Manufacturing PMI at 15:00 GMT this Tuesday. The index is anticipated to decline to 60.2 in December from 61.1 in the previous month. Given that the Fed looks more at the labour market and inflation than growth, investors will keep a close eye on the Employment and Prices Paid sub-component.

As Yohay Elam, Analyst at FXStreet, explains: “While the manufacturing sector is small in comparison to the services one, the release is not only the first for the new year but also the initial hint toward Friday's all-important Nonfarm Payrolls. The employment component and also the Prices Paid one – reflecting inflation expectations – are all of high importance.”

How could it affect EUR/USD?

Ahead of the key release, the US dollar continued drawing support from surging US Treasury bond yields and dragged the EUR/USD pair to a nearly two-week low. A stronger headline print will reaffirm hawkish Fed expectations and provide an additional boost to the greenback. Conversely, a weaker reading might do little to derail the Fed's expected policy path. This, in turn, suggests that the path of least resistance for the greenback is to the upside and down for the EUR/USD pair.

Meanwhile, Valeria Bednarik – Chief Analyst at FXStreet – offered a brief technical outlook for the major: "The daily chart shows that the pair stands below a flat 20 SMA, providing intraday dynamic resistance, while the longer ones keep heading lower far above it. Technical indicators head south around their midlines, failing to confirm, at this point, a bearish extension."

"In the near term, and according to the 4-hour chart, the bearish case is firmer. The pair has fallen below all of its moving averages, while technical indicators extend their declines within negative levels, maintaining their bearish slopes," Valeria added further.

Key Notes

  •  ISM Manufacturing PMI Preview: Low expectations in three figures open door to dollar upswing

  •  EUR/USD Forecast: Bears maintain the pressure on yields’ rally

  •  EUR/USD Price Analysis: Initial contention emerges near 1.1220

About the US ISM manufacturing PMI

The Institute for Supply Management (ISM) Manufacturing Index shows business conditions in the US manufacturing sector. It is a significant indicator of the overall economic condition in the US. A result above 50 is seen as positive (or bullish) for the USD, whereas a result below 50 is seen as negative (or bearish).

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