Breaking: US ISM Services PMI surpasses consensus in November

Fresh data from the Institute for Supply Management (ISM) showed the Services Purchasing Managers Index (PMI) picking up to 52.6 in November from 52.4, beating expectations of 52.1 and signalling a bit more momentum in the sector.

Inflation pressures eased a tad as the Prices Paid Index edged lower to 65.4 from 70. Hiring conditions are still soft, though slightly improved, with the Employment Index rising to 48.9 from 48.2. Meanwhile, new business loses some momentum, with the New Orders Index receding to 52.9 from 56.2.

Market reaction

The Greenback remains well offered on Wednesday, prompting the US Dollar Index (DXY) to drop to fresh lows in the sub-99.00 region and keeping its ongoing march south unabated for now.

This section below was published as a preview of the US ISM Services PMI report for November at 13:00 GMT.

• The US ISM Services PMI is expected to show a slight slowdown in business activity in November.
• Investors will be particularly attentive to the employment and prices paid sub-indexes.
• The US Dollar would need a positive surprise in the ISM Services PMI to ease the current bearish pressure.

The United States (US) Institute of Supply Management (ISM) will release its Services Purchasing Managers’ Index (PMI) data for November on Wednesday at 15:00 GMT.

Traders will be attentive to the Services PMI release to assess the overall conditions of the US services sector, a key contributor to the US Gross Domestic Product (GDP). The ISM is expected to show that the Services PMI eased to 52.1 from October’s 52.4, yet still at levels consistent with healthy growth in the sector’s business activity. If the expectations are confirmed, November will be the second consecutive month of growth in the ISM Services PMI, after stalling at 50.0 in September. PMI figures below that level signal contraction of the sector’s activity.  

Beyond the PMI reading, investors will be attentive to the rate sub-indexes, namely the Employment Index, which has been contracting for the past five months, fuelling concerns about the deterioration of the US labour market. The Prices Paid Index, which reveals inflationary trends in the sector, and the New Orders Index, which shows the prospects for upcoming activity, will also be carefully analysed.

How could US ISM Manufacturing PMI affect EUR/USD?

The EUR/USD has been rallying continuously for the last 8 trading days and is nearly 1.2% up from mid-November lows. Price action has broken the top of the descending channel from early October highs, at 1.1605, and technical indicators are pointing up.

The 4-Hour Moving Average Convergence Divergence (MACD) is rising from the zero line, indicating growing bullish momentum. The Relative Strength Index (RSI), however, has reached overbought levels, which reveals an overstretched market. Bearish attempts, however, are likely to find buyers.

Against this background, the US Dollar would need a positive surprise in the ISM Services PMI, preferably with an unlikely increase in the employment gauge, to regain some of the ground lost over the last few days. 

Otherwise, the EUR/USD is expected to maintain its bullish trend, supported by ECB-Fed monetary policy divergence. Bulls are likely to meet resistance at the 1.1660-1.1670 area, which capped rallies in late October and mid-November. A confirmation above here will bring the October 17 high, near 1.1730, into focus.

Downside attempts, on the contrary, are likely to be challenged at the reverse trendline, now at 1.1605. A bearish reaction beyond that level would give bears confidence to retest Tuesday's low at 1.1590 ahead of the 1.1550 area (near November 26 and 28 lows).