USD: ISMs are key - TDS

TD Securities analysts point out that the DXY has flirted with a break of 100dma technical support around ~96.98, putting the more crucial 200dma pivot (96.50) in view and they are circumspect that the market is ready to break this key level ahead of the ECB on Thursday.

Key Quotes

“We do look to ISM services today as a notable data point for the broad USD, where disappointment here will likely further challenge the notion of US exceptionalism. Indeed, the ISM manufacturing/services spread has often coincided with phases of appreciation/depreciation in the broad USD.”

“The relationship is inverted however, as a collapse in the spread all things equal would likely coincide with a slowdown in growth, which in turn fuels concern for prospects globally. Notably, the collapse in the spread is typically consistent with levels that have coincided with recessions in the past (which eventually leads to easing by the Fed).”

“The context matters here however, as both ISM measures remain above the 50 threshold, which signifies that this is probably a false positive in terms of flagging that recession risk. Indeed, the last time instance where this occurred was in 2015 which was largely driven by a collapse in ISM services, whereas the manufacturing measure slowed but remain well supported around 55.”