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 Monday. The gauge is expected to come in at 51.5 for May, down a little from 51.9 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 fall from 59.6 in April to 57.8 during the reported month.

How Could It Affect EUR/USD?

Ahead of the key release, the prospects for another 25 bps rate hike by the Federal Reserve (Fed) in June push the US Dollar (USD) higher for the second successive day and drag the EUR/USD pair back blow the 1.0700 mark. A stronger US ISM Services PMI, along with higher-than-expected Prices Paid Index, will reaffirm market expectations, which should provide an additional boost to the Greenback and pave the way for a further depreciating move for the major.

In contrast, any immediate market reaction to the disappointing headline print is more likely to remain limited amid a further rise in the US Treasury bond yields. This, in turn, favours the USD bulls and suggests that the path of least resistance for the EUR/USD pair is to the downside. That said, a generally positive risk tone could act as a headwind for the safe-haven buck and help limit deeper losses for the major, at least for the time being.

Eren Sengezer, Editor at FXStreet, offers a brief technical outlook and writes: “EUR/USD broke below the 20 and the 50-period Simple Moving Averages (SMA) on the four-hour chart and the Relative Strength Index (RSI) indicator on the same chart dropped below 50, reflecting the bearish bias in the short term.

Eren also outlines important technical levels to trade the EUR/USD pair: “The upper-limit of the descending regression channel aligns as immediate support at 1.0680. In case EUR/USD returns within that channel by confirming that level as resistance, 1.0650 (mid-point of the channel, end-point of the latest downtrend) aligns as strong support before bears could target 1.0600 (psychological level, lower-limit of the descending channel).”

“On the upside, a four-hour close above 1.0720 (50-period SMA) could discourage sellers. In that scenario, 1.0750 (Fibonacci 23.6% retracement level of the latest downtrend) and 1.0780 (100-period SMA) align as next hurdles,” Eren adds further.