ISM Services PMI Preview: US service sector expected to expand in August

On Thursday, we’ll get the latest read on the US service sector when the Institute for Supply Management (ISM) publishes its August gauge. Consensus points to a marginal improvement to 54.3 from July’s 54.1. If confirmed, the reading would reinforce the sector’s resilience and offer a modest boost to confidence in the broader economy.

Back in July, the details from that release were mixed: hiring momentum weakened, with the ISM Employment Index dropping to 47.4 (from 51.2). On the flip side, New Orders gathered decent steam, increasing to 57.2, which hinted that demand may be picking up pace. In tandem with the steady growth, the Prices Paid Index rose to 70.3, 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 July, following the small decline in the Consumer Price Index (CPI), while Personal Consumption Expenditures (PCE) readings remained unchanged from a month before. 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 pick-up in speculation surrounding 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 Thursday at 14:00 GMT.

Pablo Piovano, Senior Analyst at FXStreet, explains that the near-term outlook for EUR/USD has deteriorated since the recent break below its critical 200-day SMA in the 1.1630 region.

Against that, Piovano argues that there is a provisional support at the 100-day SMA near 1.1570, while a deeper retracement could lead to a test of the minor support at 1.1511 (August 13), ahead of the interim 55-day SMA around 1.1490.

On the flip side, “if the pair manages to reclaim the 200-day SMA, it could then attempt a move toward the August peak at 1.1711 (August 21)", Piovano adds.

“Momentum indicators also suggest that further pullbacks should remain on the cards, as the Relative Strength Index (RSI) has retreated to the 52 region, while the Average Directional Index (ADX) near 37 suggests that the current trend is quite firm”, he concludes.