US ISM Services PMI Overview
The Institute of Supply Management (ISM) will release the Non-Manufacturing Purchasing Managers' Index (PMI) - also known as the ISM Services PMI – at 14:00 GMT this Wednesday. The gauge is expected to edge higher to 58.5 in April from 58.3 in the previous month. Given that the Fed looks more at inflation than growth, investors will keep a close eye on the Prices Paid sub-component, which is expected to rise to 84.1 from 83.8 in March.
How Could it Affect EUR/USD?
Ahead of the key release, the disappointing release of the US ADP report exerted some downward pressure on the US dollar and lifted the EUR/USD pair back above the mid-1.0500s. That said, the prospects for a more aggressive policy tightening by the Fed acted as a tailwind for the buck. Stronger-than-expected US macro data would reaffirm hawkish Fed expectations and push the US bond yields/USD higher. Conversely, a softer reading is more likely to be overshadowed by concerns that the European economy will suffer the most from the Ukraine crisis, which, in turn, should continue to weigh on the euro. This, in turn, suggests that the path of least resistance for the EUR/USD pair is to the downside. That said, any immediate market reaction is more likely to be short-lived as the focus remains glued to the outcome of a two-day FOMC meeting, scheduled to be announced later during the US session.
Valeria Bednarik, Chief Analyst at FXStreet, offered a brief technical outlook for the pair: “The EUR/USD pair keeps trading near a multi-year low of 1.0470 achieved last week, consolidating yearly losses. The daily chart shows that bears are still in the drivers’ seat, given that technical indicators remain lifeless near oversold readings, reflecting absent buying interest. At the same time, the pair is far below all of its moving averages, with a bearish 20 SMA providing dynamic resistance around 1.0730.”
“In the near term, and according to the 4-hour chart, the pair is neutral. It keeps seesawing around a flat 20 SMA while the longer moving averages maintain their downward slopes far above the current level. Technical indicators aim to cross their midlines into positive territory but without enough momentum to confirm a firmer recovery. Bulls will have better chances if the pair extends its rally above 1.0595, April 29 daily high and the immediate resistance level,” Valeria added further.
Key Notes
• EUR/USD Forecast: How aggressive would the Fed be after today?
• EUR/USD Forecast: Cautious Fed to trigger a rebound
• EUR/USD Price Analysis: The door to a deeper pullback remains open
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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