TheNews

Trading the News: U.S. ISM Non-Manufacturing

The ISM Non-Manufacturing survey may spark a lackluster market reaction as the index is anticipated to hold steady at 56.5 in February, but a positive development may heighten the bullish sentiment surrounding the U.S. dollar as it fuels bets for a Fed rate-hike.

What’s Expected:

Why Is This Event Important:

The recent batch of hawkish Fed rhetoric have moved interest-rate expectations, with Fed Fund Futures now pricing a greater than 70% probability for a March rate-hike, and the central bank may stay on course to implement higher borrowing-costs over the coming months especially as the U.S. economy approaches ‘full-employment.’ With that said, signs of stronger service-based activity may encourage Fed Chair Janet Yellen to join her colleagues and endorse a more hawkish outlook for monetary policy with the central bank head scheduled to speak ahead of the blackout period. However, a downtick in business sentiment may push Chair Yellen to tame interest rate expectations as ‘market-based measures of inflation compensation remain low; most survey-based measures of longer-term inflation expectations are little changed, on balance,’ and the central bank head may continue to promote a wait-and-see approach as ‘inflation moved up over the past year, mainly because of the diminishing effects of the earlier declines in energy prices and import prices.’

Nevertheless, the slowdown in private-sector lending accompanied by the recent slump in building activity may drag on the U.S. service-sector, and a dismal ISM print may undermine the recent advance in the greenback as it dampens the outlook for growth and inflation.

How To Trade This Event Risk
Bullish USD Trade: Gauge for Service-Based Activity Beats Market Expectations

• Need a red, five-minute candle subsequent to the release to favor a short EUR/USD position.
• If market reaction favors a bullish dollar trade, short EUR/USD with two separate position.
• Set stop at the near-by swing high/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.

Bearish USD Trade: ISM Non-Manufacturing Survey Disappoints

• Need a green, five-minute candle to encourage a long EUR/USD position.
• Implement same strategy as the bullish dollar trade, just in reverse.

Potential Price Targets For The Release
EUR/USD Daily



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