The April ISM manufacturing report is expected to improve to 38.4 from 36.3 the month prior as easing credit markets have started to help fuel activity. It would be the fifth straight month of improvement and the highest level since September, 2008.
Fundamental Outlook
The April ISM manufacturing report is expected to improve to 38.4 from 36.3 the month prior as easing credit markets have started to help fuel activity. It would be the fifth straight month of improvement and the highest level since September, 2008. However, we could see a greater than expected improvement given that the Chicago PMI reading beat estimates of 35 with a print of 40.1. Increases in new orders and production are strong signs that conditions are improving. If we see similar improvements in the broader measurement then we could see the continuation of the prevailing risk appetite which could weigh on the dollar. This would validate the technical outlook which is calling for the EUR/USD to test 1.3742. Therefore, a significant improvement in ISM manufacturing would justify a long EUR/USD trade.
Technical Outlook
The push above channel resistance suggests to me that the EURUSD corrective advance from 1.2510 is not yet complete. In fact, recent developments suggest a rally through 1.3742 and possibly as high as 1.4150-1.4200 (61.8% of decline from 1.4723 and 100% extension of 1.2510-1.3742). Staying above 1.2965 keeps this outlook intact and there is short term Fibonacci support at 1.3125. There is one count that treats the current decline as an ending diagonal…I do not see this count as probable given the break of the channel AND the break higher in stocks yesterday (assuming that recent correlations hold). I’ll probably attempt to go long in the next few days against 1.2965.
For More Technical Analysis Visit the Daily Technical Report
To discuss this report contact John Rivera, Currency Analyst: jrivera@fxcm.com
