EUR/USD, Wall Street analysis: ISM services could pack a punch today

With so much attention on US employment data this week, I feel compelled to remind all that today’s ISM services report could pack a punch of its own. And that we are approaching today’s report under similar circumstances to the last: Traders are concerned that the US could be headed for a recession following weaker employment and ISM manufacturing reports. And that sentiment could be reversed again if ISM services data holds up.

The ISM services PMI was not particularly high at 51.4, but markets were positioned for more doom and gloom which wasn’t delivered. New orders and employment also expanded to further ease fears of a recession. And with services accounting for ~80% of the US economy, this report should carry more weight that perhaps it does. And if we’re to see a further strengthening of these figures today, it could give risk a decent bump and lower bets of a 50bp Fed cut. Of course, should they tank, then risk will surely roll over with the data and weigh on yields and the US dollar.

The chart shows that the S&P 500 and Nasdaq 100 fell upon the release of July’s ISM manufacturing report, yet the selling subsided on the day of the ISM services report. Momentum then turned higher, and the ASX 200 and Nikkei 255 followed each twist and turn.

Events in focus (AEDT):

Today’s employment data also counts as it really is a warmup for tomorrow’s NFP release. But the key point is that ISM services should not be ignored, and that we might have a better idea over whether the Fed will deliver a 50bp cut this year or not by Thursday’s close, if not by the weekend. And that will be the difference to whether risk rallies or takes another turn for the worse this week.

• 21:30 – US Challenger job cuts
• 22:15 – US ADP payrolls
• 22:30 – US jobless claims, nonfarm productivity, unit labour costs
• 23:45 – US services, composite PMI (final)
• 00:00 – US services PMI

EUR/USD technical analysis:

I outlined a bullish bias on Tuesday which is now coming into play. Although we did see an initial spike of Monday’s low before momentum turned mu way. Still, a bullish engulfing candle formed on Wednesday, and the bias remains for a break above 1.11.

The 1-hour chart shows a bullish divergence formed on the 1-hour chart, and prices are now trying to form a trend having re-established the 38.2% Fibonacci level as support. Dips within Wednesday’s range could improve the potential reward to risk ratio for bulls, for a run back up towards the December high.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge