- The US ISM Services PMI is expected to show the sector’s resilience in September.
- The US services sector is expected to remain well into expansionary territory.
- Bets of further Fed tightening appear to have lost traction in the last few days.
On Monday, we’ll get the latest read on the US services sector when the Institute for Supply Management (ISM) publishes its September gauge. Consensus points to a marginal downtick to 55 from August’s 55.4. If confirmed, the reading is unlikely to significantly dent the current sector’s resilience and confidence in the broader economy.
Back in August, the details from that release were mixed: hiring momentum picked up pace, with the ISM Employment Index climbing a tad to 47.8 (from 47.4). In the same line, New Orders gathered decent steam, increasing to 60.9, which hinted that demand may be picking up pace. In tandem with the steady growth, the Prices Paid Index rose to 72.6, echoing the strengthening momentum of inflation pressures.
What to expect from the ISM Services PMI report?
Inflation in the US is still running hotter than the Federal Reserve’s (Fed) 2% target, and that keeps policymakers uneasy, especially amid the still unresolved crisis in the Middle East and with the full effects of US tariffs yet to filter through the economy.
The inflationary pressure in the US appears to have lost some traction in August, following the latest data from the Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE). However, Fed officials and Chair Kevin Warsh have been cautious in their latest comments, keeping the issue of (still elevated) inflation on the table and the main source of the recent increase in speculation surrounding extra rate hikes in the second half of the year.
Against that backdrop, an ISM Services PMI that lands in line with expectations probably won’t move the US Dollar (USD) much. It would simply confirm the picture of an economy that’s still resilient but still wrestling with sticky price pressures. A softer-than-expected print, though, could shake confidence and see investors probably trimming their USD holdings on fears that growth is losing momentum.
When will the ISM Services Purchasing Managers Index report be released, and how could it affect EUR/USD?
The Institute for Supply Management (ISM) will publish the Services Purchasing Managers Index (PMI) on Monday at 14:00 GMT.
Pablo Piovano, Senior Analyst at FXStreet, explains that the near-term outlook for EUR/USD has markedly deteriorated since the beginning of September, coincidentally with a break below its critical 200-day SMA.
Against that, Piovano argues that with spot trading near the 1.1200 yardstick, the continuation of the bearish trend should meet the next support at the May 2025 floor at 1.1064 (May 21). Further south comes the psychological 1.1000 contention zone prior to the weekly trough at 1.0732 (March 27, 2025).
On the flip side, “If the pair manages to reclaim the 1.1515-1.1520 zone, where both the provisional 55-day and 100-day SMAs sit, the next target is expected to emerge at the more relevant 200-day SMA around 1.1610,” Piovano adds.
“Momentum indicators also suggest that further pullbacks are likely for now, although a technical bounce cannot be ruled out given that the Relative Strength Index (RSI) is around 17, while the Average Directional Index (ADX) near 40 indicates that the current trend remains robust,” he concludes.
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