US ISM Services PMI Overview
The Institute of Supply Management (ISM) will release the Non-Manufacturing Purchasing Managers' Index (PMI) – also known as the ISM Services PMI – at 14:00 GMT this Tuesday. The gauge is expected to fall to 55.1 in August from 56.7 in the previous month. Given that the Fed looks more at inflation than growth, investors will keep a close eye on the Prices Paid sub-component, which is anticipated to rise from 72.3 in July to 76.5 during the reported month.
According to Yohay Elam, Senior Analyst at FXStreet: “The services sector, America's largest, has been humming along at a rapid clip since the worst of the pandemic. Despite easing in early 2022, the indicator remained well above 50. That is the level separating expansion from contraction.”
How Could it Affect EUR/USD?
Ahead of the key release, the US dollar climbs back closer to a two-decade high set earlier this week amid a fresh leg up in the US Treasury bond yields, bolstered by hawkish Fed expectations. A stronger-than-expected US macro data will reinforce bets for a supersized 75 bps Fed rate hike move in September and lift the US bond yields even higher, along with the greenback.
Conversely, a weaker print will add to worries about a global economic downturn and act as a tailwind for the safe-haven greenback. This, along with worries about the worsening energy crisis in Europe, which could drag the region's economy faster and deeper into the recession, suggests that the path of least resistance for the EUR/USD pair is to the downside.
Eren Sengezer, European Session Lead Analyst at FXStreet, offers a brief technical overview of the EUR/USD pair: “The Relative Strength Index (RSI) indicator on the four-hour chart edged lower after having climbed above 50 during the Asian trading hours, reflecting the buyers' unwillingness to commit to additional euro gains.”
Eren also outlines important levels to trade the EUR/USD pair: “Currently, the pair is trading at 0.9950, where the 20-period SMA is located. In case this level turns into resistance, additional losses toward 0.9900 (psychological level) and 0.9880 (September 5 low) could be witnessed.”
“On the other hand, EUR/USD faces immediate resistance at 0.9980 (50-period SMA) ahead of 1.0000 (psychological level, Fibonacci 23.6% retracement of the latest downtrend) and 1.0025 (100-period SMA),” Eren adds further.
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• EUR/USD: A drop to the 0.9600-0.9650 supports cannot be excluded – ING
About the US ISM manufacturing PMI
The Institute for Supply Management (ISM) Manufacturing Index shows business conditions in the US manufacturing sector. It is a significant indicator of the overall economic condition in the US. A result above 50 is seen as positive (or bullish) for the USD, whereas a result below 50 is seen as negative (or bearish).