Preview of US ISM Manufacturing PMI: Implications for the EURUSD

At 3pm GMT, the US ISM Manufacturing PMI data will be released to the markets. Analysts are predicting a pickup to 49.0, after last month’s disappointing reading that came in at 48.1. Coming off New Year celebrations, this data release is likely to draw a muted market response, as all eyes are focussed at the moment on developments in the Middle East.

Despite the expected pickup in the figures, this will mark the 5th month that the US ISM Manufacturing PMI will come in at less than 50.0 if the readings meet expectations. This shows that the manufacturing sector in the US continues to face headwinds, especially from the yet unresolved US-China trade dispute.

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Trading the US ISM Manufacturing Data with the EURUSD

The deviation between this month’s expected reading and last month’s figures is 0.9. Therefore, a reading that comes in at 49.9 or higher will be an indication that there is a vast improvement in manufacturing conditions in the US and is likely to draw a strong, favourable response in the US Dollar, which is already on bid as a result of safe-haven plays this Friday. This could therefore send the EURUSD lower.

On the flip side, a lower-than-expected reading that comes in at 48.0 or lower could draw see some USD selling. However, this is likely to be muted by the prevailing risk-off sentiment.

The Fibonacci retracement levels traced from the swing high of Jan 31, 2019 to the swing low of Sep 30, 2019 shows that the next support level is at 1.11150. This price level intersects the lower border of the ascending channel perfectly, thus reinforcing this area as the next support level. A breach of this support area to the downside targets 1.1067 (previous lows of Aug 15-22 as well as Dec 20-23, 2019), with 1.1027 (23.6% retracement) being the next in line.

To the upside, 1.11858 (50% retracement and double tops of Oct 18 and Nov 4) could be the immediate target of a price recovery in the EURUSD. Further upside could then target 1.12565 (61.8% retracement) if upsurge is strong enough.

However, continued risk-off sentiment may present new opportunities to sell at any of the rally points.

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