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 drop to 53.5 in July from 55.3 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 81.6 from 80.1 in June.

According to Eren Sengezer, European Session Lead Analyst at FXStreet: “Markets should pay close attention to the Employment component as well. Ahead of Friday’s jobs report, a print below 50 would point to a contraction in the service sector employment and put additional weight on the USD’s shoulders.”

How Could it Affect EUR/USD?

Ahead of the key release, the risk-on impulse in the equity markets was seen undermining the safe-haven US dollar. A weaker-than-expected US macro data could exert additional downward pressure on the buck. That said, a further rise in the US Treasury bond yields, bolstered by the overnight hawkish comments by several Fed officials, should limit deeper USD losses.

Conversely, a stronger print would be enough to provide a modest lift to the greenback and prompt fresh selling around the EUR/USD pair. The immediate market reaction, however, is more likely to be short-lived as investors might prefer to wait on the sidelines ahead of the US monthly jobs report (NFP) on Friday. Nevertheless, a significant divergence from the expected reading would still influence the USD and produce some meaningful trading opportunities around the EUR/USD pair.

Eren Sengezer, meanwhile, outlined important technical levels to trade the major: “EUR/USD faces immediate resistance at 1.0200 (psychological level, 50-period SMA on the four-hour chart). As long as this level stays intact, buyers could opt to remain on the sidelines. In case the pair reclaims that level and starts using it as support, additional gains toward 1.0230 (Fibonacci 38.2% retracement level of the latest downtrend), 1.0275 (200-period SMA) and 1.0300 (Fibonacci 50% retracement) could be witnessed.”

“On the downside, 1.0150 (Fibonacci 23.6% retracement) aligns as first support ahead of 1.0100 (psychological level, static level). A four-hour close below the latter could be seen as a significant bearish development and trigger another leg lower toward parity,” Eren added further.

Key Notes

  •  US July ISM Services PMI Preview: Inflation component holds the key

  •  EUR/USD Forecast: Euro to have a tough time regathering recovery momentum

  •  EUR/USD Price Analysis: Next on the upside comes 1.0300

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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