The EUR/USD currency pair remains strongly bullish, above the psychological level of 1.1700. With key consumer price index and producer price index data due out in the coming days, market participants have especially guarded sentiment. Investors are looking forward to the US ISM Manufacturing Purchasing Managers’ Index (PMI) report. The Euro-Dollar pair appears poised to break its annual high of 1.1830 after peaking at 1.1742 in August, which now serves as short-term resistance.
With the ISM Manufacturing PMI report set to be released at 14:00 GMT on Tuesday, analysts are closely monitoring the economic indicators for signs of recovery or contraction in the manufacturing sector. In other indicators, the outlook for August has brightened, inching up to a forecast of 49, from July’s 48. This points toward the conclusion that, while the sector is certainly still retracting, stabilization is evident.
Current Trends and Resistance Levels
The EUR/USD pair hovers with a slight bullish bias. It is still trading above the short-term important support level of 1.1650. Major support follows down through this comfort zone, which is important for keeping upward momentum, with later support found at 1.1590 price zone.
Traders are waiting on that August top at 1.1742. This level has proven tough resistance in the short term as traders bet the pair can’t reach its 2025 top of 1.1830 over the next few days. Positive sentiment is clearly on the Euro side against the Dollar here. This all comes at a time of considerable economic uncertainty, and the next data release may well determine market direction.
At week’s end, look for trading conditions to turn considerably more erratic as the week progresses. Public holidays and big data releases will add to this volatility. Bednarik commented on this volatility, stating:
“With the week starting with a US holiday and ending with the NFP release, EUR/USD could see some choppy price action and lack directional definitions. Yet, as the Fed’s September announcement looms, nervous betting on whether the central bank may or may not act this time could result in some wild intraday spikes heading nowhere.” – Bednarik
The Significance of the ISM Manufacturing PMI Report
The ISM Manufacturing PMI report is one of the most important economic indicators that exists. It regularly provides early, valuable insights into the health of the national manufacturing sector. A level above 50 means that the industry is expanding and a level below 50 means it’s contracting. At 49 – the preliminary reading for August – any figure above 50 means more of the surveyed professionals expect an improvement, rather than a deterioration. The challenges remain for our sector.
In July, the ISM report showed that manufacturing activity contracted for the fifth consecutive month. This trend highlights the mounting headwinds this hardworking sector of our economy continues to endure. The Employment Index fell to 43.4, July from June’s 45. This steep drop off begs the question of future job creation from the manufacturing sector. In contrast the Production Index came in at 51.4, indicating modest expansion from June’s 50.3.
Market analysts will seek to read between the lines of the employment-related sub-index. It might provide important clues ahead of Friday’s Nonfarm Payrolls (NFP) report. Any stronger-than-expected result from the ISM report will most likely help demand for the U.S. Dollar and change market sentiment dramatically.
Implications for Monetary Policy
The monetary policy of the Federal Reserve continues to be a major driver of currency flows in the United States. The implications of the central bank’s actions are always of high interest by market participants, but even more so given the backdrop of recent economic indicators. The build-up to the Fed’s expected September announcement further complicates the trading environment today.
Traders are preparing for possible volatility from scheduled major economic releases. Beyond being just a curiosity, it’s important to consider how this new data could affect expectations for future Federal Reserve interest rate decisions. We know that a better-than-expected ISM PMI helps improve investor sentiment which typically favors a stronger USD. If results are disappointing, it could reinforce fears of a persistently weak economy.