The US dollar has surged as the Institute for Supply Management's summary of non-manufacturing (services) conditions unexpectedly improved in August to a reading of 50.6 from 49.5, with the rise above 50 signaling an expansion in the sector for the first time since May.
A breakdown of the report, though, suggests that the headline reading may be a bit deceiving. While price growth appears to be slowing, domestic and export orders both continue to contract, as those indexes held below 50. Furthermore, inventories are still rising, which may suggest that supplies are building up given the lack of demand. Finally, the employment component slipped to 45.4, signaling weakening labor conditions for the fourth consecutive month. This certainly does not bode well for Friday’s US non-farm payrolls report, which is anticipated to show 75,000 job losses.
Nevertheless, the US dollar has strengthened on the release thanks to the stronger-than-expected headline ISM services reading. Something worth watching is the potential break in EUR/USD below key trendline support, as a close below 1.4400 today may signal that additional gains are in store for the greenback.
EUR/USD (Weekly Chart)
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Written by Terri Belkas, Currency Strategist of DailyFX.com
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