When is the US ISM Services PMI and how could it affect EUR/USD?

Haresh Menghani FXStreet

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 15:00 GMT this Friday. The gauge is expected to come in at 54.5 for February, down from 55.2 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 anticipated to decelerate from 67.8 in January to 64.5 during the reported month.

Economists at ING offer a brief preview of the important macro data and write: “Consensus is centred around a marginal decrease from 55.2 to 54.5, which would confirm speculation on recession is too premature and would continue to endorse the Fed’s hawkish rhetoric. We think this should allow further stabilisation of the Dollar around current levels.”

How Could it Affect EUR/USD?

Ahead of the key release, retreating US Treasury bond yields prompts some selling around the US Dollar. This, along with the overnight hawkish comments by ECB President Christine Lagarde, assists the EUR/USD pair to regain positive traction on the last day of the week. Any disappointment from the US ISM Services PMI could exert additional downward pressure on the Greenback and continue pushing the pair higher. That said, the market reaction is more likely to remain limited amid growing acceptance that the Fed will continue to tighten its monetary policy to combat stubbornly high inflation.

Hence, a stronger headline print and higher-than-expected Prices Paid Index should be enough to trigger a fresh leg up in the US bond yields, which, in turn, should help revive the USD demand. Apart from this, looming recession risks should continue to act as a tailwind for the safe-haven buck. This, in turn, suggests that the path of least resistance for the EUR/USD pair is to the downside and any subsequent move up might still be seen as a selling opportunity.

Eren Sengezer, Editor at FXStreet, offers a brief technical outlook and outlines important technical levels to trade the major: “EUR/USD is currently trading slightly above the descending regression channel coming from early February. The 20-period and the 50-period Simple Moving Averages (SMA) reinforce that resistance area that aligns at 1.0610/1.0620. Once the pair stabilizes above that hurdle, it could target 1.0650/60 (Fibonacci 23.6% retracement of the latest downtrend, 100-period SMA), 1.0700 (psychological level) and 1.0720 (Fibonacci 38.2% retracement)..”

“On the other hand, if the pair returns within the descending channel, sellers could take action and cause EUR/USD to slide toward 1.0560 (mid-point of the descending channel), 1.0540 (static level) and 1.0500 (psychological level, lower limit of the descending channel), .” Eren adds further.

Key Notes

• ISM Services PMI Preview: Strong figure set to catapult US Dollar to new highs

• US February ISM Services PMI Preview: Will it influence Fed rate hike bets?

• EUR/USD Forecast: Investors struggle to make up their minds about Euro's direction

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).

Author

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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