TheNews

- U.S. ISM Manufacturing Survey Expected to Fall Back from Highest Reading Since March 2011.
- Even Though Employment Component Narrowed in August, Still Marked the Second-Highest Print for 2014.

Trading the News: U.S. ISM Manufacturing

A downtick in the ISM Manufacturing survey may generate a bearish dollar reaction (bullish EUR/USD) should the data print dampen the outlook for growth and inflation.

What’s Expected:



Why Is This Event Important:

At the same time, we will need to keep a close eye on the employment component as the highly anticipated Non-Farm Payrolls (NFP) report is expected to show the U.S. economy adding another 217K jobs in September, and a material downward revision in the key metrics may undermine the bullish sentiment surrounding the greenback as it drags on interest rate expectations.

Expectations: Bearish Argument/Scenario

Release	Expected	Actual
Chicago Fed National Activity Index (AUG)	0.33	-0.21
Industrial Production (MoM) (AUG)	0.3%	-0.1%
Manufacturing Production (SIC) (AUG)	0.1%	-0.4%

The dollar may face a near-term correction should the ongoing slack in the real economy spur a marked slowdown in manufacturing, and a dismal ISM print may prompt the Fed to further delay its normalization cycle as Chair Janet Yellen remains reluctant to move away from the zero-interest rate policy (ZIRP).

Risk: Bullish Argument/Scenario

Release	Expected	Actual
Personal Spending (AUG)	0.4%	0.5%
Advance Retail Sales (MoM) (AUG)	0.6%	0.6%
Consumer Credit (JUL)	$17.350B	$26.006B

Nevertheless, the resilience in private sector consumption may foster another unexpected uptick in the manufacturing survey, and a better-than-expected release may heighten the bullish sentiment surrounding the dollar as it raises the Fed’s scope to implement a rate hike sooner rather than later.

How To Trade This Event Risk

Bearish USD Trade: ISM Survey Narrows to 58.5 or Lower

• Need to see green, five-minute candle following the release to consider a long trade on EURUSD
• If market reaction favors a bearish dollar trade, buy EURUSD with two separate position
• Set stop at the near-by swing low/reasonable distance from entry; look for at least 1:1 risk-to-reward
• Move stop to entry on remaining position once initial target is hit; set reasonable limit

Bullish USD Trade: Manufacturing Unexpectedly Tops Market Forecast for Second Month

• Need green, five-minute candle to favor a short EURUSD trade
• Implement same setup as the bearish dollar trade, just in the opposite direction

Potential Price Targets For The Release
EUR/USD Daily

• Remains vulnerable to a further decline as near-term bearish RSI momentum remains in play
• Interim Resistance: 1.3010 (50.0% retracement) to 1.3020 (23.6% expansion)
• Interim Support: 1.2450 (78.6% retracement) to 1.2500 pivot

Impact that the U.S. ISM Manufacturing report has had on EUR/USD during the last release

Period	Data Released	Estimate	Actual	Pips Change (1 Hour post event )	Pips Change (End of Day post event)
AUG 2014	9/02/2014 14:00 GMT	57.0	59.0	-4	-2

August 2014 U.S. ISM Manufacturing
EURUSD M5 : 10 pips price movement by USD - ISM Manufacturing PMI news event:



Manufacturing activity in the U.S. unexpectedly picked up in August as the ISM survey rose to 59.0 from July’s 57.1 print; reaching the highest level since March 2011. The expansion was fueled by a surge in orders for plastics and metals, and highlights the scope for a stronger U.S. recovery in the second half of the year. The market reaction to the positive ISM print was limited and short-lived as the EUR/USD chopped around 1.3128, with the pair closing the day at 1.3122.

--- Written by David Song, Currency Analyst and Shuyang Ren


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