The US ISM manufacturing report is expected to show a slight decline to 49.5 from 49.9 as the slowing global economy is expected to weigh on demand. A second month of the sector falling into contraction could lead to an extended downturn, as last month saw a decline in overall activity despite an increase in overseas demand.

Fundamental Outlook
The US ISM manufacturing report is expected to show a slight decline to 49.5 from 49.9 as the slowing global economy is expected to weigh on demand. A second month of the sector falling into contraction could lead to an extended downturn, as last month saw a decline in overall activity despite an increase in overseas demand.  Europe and Asia heading toward recession and tight credit markets denying firms needed funds for projects. A weak manufacturing report could end the dollar’s momentum as it reminds investor’s that a potential rescue plan will leave an economy with weak fundamentals. However, a better than expected Chicago PMI reading could be a sign that overall activity is stronger than expected which would perpetuate current bullish sentiment. This would validate the technical outlook scenario of another leg lower for the EURUSD.

Technical Outlook

There remain a number of possibilities.  While not clearly an impulse, the decline from near 1.49 is deep and accelerating.  Remaining below 1.4576 keeps the most bearish count on track (in which a small 3rd wave is down from there).  The larger correction scenario is still possible (triangle or flat).  Until a break of 1.3877, we can not eliminate bullish potential.  1.4170 may be resistance.

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To discuss this report contact John Rivera, Currency Analyst: jrivera@fxcm.com