EUR/USD could reclaim 1.11 if ISM manufacturing sinks further

ISM manufacturing data is released today for August, and I’m intrigued to see if we see a further deterioration in the sector. If so, it could bolster EUR/USD for a cheeky run for 1.11, even if the weekly timeframe looks like it can still move lower beyond any such bounce.

Last month I noted that the report contained some of the most deflationary and pre-recessionary comments I had seen from respondents in quite some time.

The headline ISM figure of 46.8 marked its fastest pace of contraction in eight months, new orders also contracted. But perhaps more worryingly, the employment component tanked at its fastest pace since June 2020. Given markets are on high alert for weaker employment data ahead of Friday’s NFP, it might have an amplified effect on sentiment should employment tank further.

However, the ISM services report on Wednesday could carry more weight on the even of NFP. Especially if it contracts alongside manufacturing. However, perhaps the bigger potential move for the USD this week is if incoming data surprises to the upside overall. ISM services did just that last month, expanding at 51.4.

Ultimately, the euros direction likely lays in the hands of incoming US data. Where a rally for EUR/USD likely requires US data to come in softer than expected, whereas bears need it to come in weaker than expected.

EUR/USD technical analysis:

The euro’s rally came failed to hold above the December high last week, which saw the pair form a two-week bearish reversal pattern (dark cloud cover). The prior week’s high also coincided with the RSI (14) reaching overbought. If US data does outperform expectations relative to that of the eurozone’s, we could be looking at a lower EUR/USD over the coming weeks – even if it is simply part of a retracement lower before EUR/USD has another crack at 1.13.

However, the daily chart appears primed for at least a small bounce. Monday’s small bullish candle formed part of a 2-bart bullish reversal (piercing line), around a 38.2% Fibonacci level and 20-day EMA. Prices are holding within the upper half of Monday’s range which further suggests demand above Monday’s low. Bulls could seek longs within Monday’s range for an initial move up to 1.1100.

We could then revisit its potential to extend gains, or form a swing high as part of a deeper countertrend correction.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.