Manufacturing just dived further in contraction in the US

Forex Signals US Session Brief, Oct 1 – The USD Continues to Edge Higher With Nowhere Else to Turn to

Posted Tuesday, October 1, 2019 by
Skerdian Meta • 4 min read

Markets have been shifting and risk sentiment has been shifting on and off in recent months as the political tensions continue to affect markets globally. But, removing all the noise, the USD has been the beneficiary after all. Yesterday, the USD turned bullish, especially against the Euro, after the Italian, German and Spanish inflation figures came in pretty soft. Today, the Eurozone inflation come in mixed, with headline inflation ticking lower to 0.9%, while core CPI ticked higher to 1.0%. Although, that is still pretty soft. So, EUR/USD has continued to slide and made some new lows earlier today at the start of the European session.

But, the USD hasn’t been rallying against the Euro only. GBP/USD turned bearish earlier, despite comments from Boris Johnson’s spokesperson that a solution for the Irish border issue can be found. The Aussie has a bigger reason to decline after the Reserve bank of Australia (RBA) cut interest rates for the third time in four months last night. The decline in this pair has pulled the Kiwi lower as well. The CAD fell in the US session after the GDP report for July came in flat, missing expectations. Safe havens are also on the slide, as the sentiment remains mildly positive, so the USD is taking advantage of all this.

The European Session

  • European Manufacturing PMI – Italian manufacturing has been in contraction for a year now and it was expected to soften further for September to 48.2 points, from 48.8 in August. But it fell further to 47.8 points, missing expectations. French final manufacturing also softened from the first reading, from 50.3 points to 50.1. German final manufacturing increased a little to 41.7 points 41.4, which also influenced Eurozone manufacturing to tick higher to 45.7 points from 45.6 in the first estimate.
  • Eurozone CPI Inflation – Inflation has cooled considerably in the Eurozone, just like manufacturing, hence the dovish reversal of the ECB. Today, the flash inflation for August ticked even lower to 0.9% for August, from 1.0% previously. But, core inflation ticked higher to 1.0% at least.
  • RBA Lowe Speaking – The RBA governor Lowe held a speech this morning, after the RBA cut interest rates last night. He said that today’s rate cut should help (the headline issues). He repeated that the economy is at a gentle turning point and made a large name of general banking lending comments. Nearly 4% of borrowers have loan balance exceeding property value. Lowe recognizes that monetary policy still works to support employment, income and growth.
  • UK PM Johnson’s Spokesperson Commenting – Johnson’s spokesperson commented earlier today, saying that there will be no checks at the border on the Island of Ireland after Brexit. Minister will make statement in Parliament and publish details of Brexit plans in coming days. Plans will not include proposals for border checks 5 to 10 miles from the border on the Island of Ireland.

The US Session

  • Canadian July GDP Report – The GDP report from Canda is out. Growth fell flat to 0.0% in July, missing expectations of 0.1%. YoY GDP moved lower to 1.3% against 1.4% expected, down from 1.5% in June. Goods producing sector came in at -0.7% and construction also came at -0.7%. These 2 sectors were the biggest drag for the economy in July. Services-producing increased by 0.3% which is the 5th consecutive increase. Manufacturing came in at -0.1%, wholesale trade at +1.1%. The drop in oil and gas production was largely due to a shutdown of some offshore oil production off the coast of Newfoundland.
  • Irish PM Speaks on the Irish border – The Irish Prime Minister Varadkar commented a while ago. He said that no British gov’t should seek to impose customs posts. In a no-deal Brexit, we will maybe need checks close to the border. Says he welcomes PM Johnson’s distancing of himself from the papers leaked to the media. If Johnson had not distanced himself, it would be evidence of bad faith from the UK government.
  • US ISM Manufacturing Falls Deeper in Contraction – The ISM Index has come in unexpectedly low at 47.8 points, missing expectations for a return into expansion at 50.4 points! This release of the ISM Manufacturing Index is a ten-year low, with employment metrics lagging to 46.3 from 47.7 previously. US Construction Spending has also come in negative at 0.1% for August, south of the expected 0.5%. More fuel for the reversal of early fortunes.
    Today’s ISM figure was the weakest since 2009, the height of the Global Financial Crisis. Be on the lookout for losses in equities and the USD to intensify as the session wears on.

Trades in Sight

Bearish EUR/USD

  • The trend is bearish on the H4 chart
  • Fundamentals point down for the Euro
  • The 20 SMA is pushing this pair down

The 20 SMA is providing resistance again today

EUR/USD has been bearish for more than a year, but it has been getting increasingly bearish in the last two weeks, as the Eurozone economy continues to deteriorate. Today this pair made new lows after breaking below 1.09 yesterday. But we have seen a retrace higher during most of the European session today. Although, the pullback seems exhausted now as this pair retreated off the 20 SMA (grey) once again on the H4 chart. Fundamentals are still more bearish for the Euro, so we decided to go short below the 20 SMA just a while ago.

In Conclusion

The US ISM manufacturing PMI indicator was expected to return above 50 points today after falling into contraction last month. But, the contraction deepened further in September as the figures released just now show. This increases the uncerainty further on a global scale, because it would mean that the manufacturing sector is falling fast in contraction in the US as it has in other major countries across the globe.

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