The markets have been quite agitated in these two days, and today it’s all about the flows once again with the USD retreating lower after the hot start to the new year from yesterday. The USD  was sold off in the European session, in a bit of a run back towards the prevailing theme in the latter stages of last year, which means sell the dollar, buy everything else.

Although crude Oil endured some heavy losses again today after falling $4 yesterday. The USD decline today was more prominent against the antipodeans as risk sentiment holds more optimistic in Europe again. A softer inflation report from France goes in line with what we saw from Germany yesterday, which is helping keep the mood more optimistic. On the other hand, it means that the ECB should slow down with rate hikes soon, which is bearish for the Euro.

So, EUR/USD gained around 100 pips today and increased above 1.06 again. Yesterday’s decline was stopped by the 200 SMA (purple) on the H4 chart, and after that, we saw a bounce higher. But the climb stopped at the 100 SMA (green) which seems to have turned into resistance.  We decided to open a sell EUR/USD signal up there ahead of the US ISM manufacturing report, which came slightly below expectations, confirming contraction, but it didn’t have much impact on the USD.

ISM Manufacturing PMI for December

• Prior month 49.0 (was expecting 49.8).
• ISM manufacturing PMI 48.4 vs. 48.5 estimate
• Prices paid 39.4 vs. 42.6 estimated. Last month 43.0
• Employment 51.4 vs. 48.3 estimated. Last month 48.4
• New orders 45.2 vs. 47.2 last month
• Production 48.5 vs 51.5 last month
• Order backlog 41.4 vs. 40.0 last month
• New export orders 46.2 vs. 48.4 last month
• Imports 45.1 versus 46.6 last month

From the PMI survey, what the respondents are saying:

• “Skilled labor shortages are huge, putting a lot of pressure on existing personnel. Electronic components still a major supply chain issue, particularly if the component you need is not the current hot technology.” [Computer & Electronic Products]
• “Customer demand continues to be depressed. While 2023 pipeline is looking very positive, current demand is significantly down.” [Chemical Products]
• “Orders are really slowing down in the original equipment sector. We haven’t seen a major output decrease because we are still eating away at our back orders.” [Transportation Equipment]
• “Lead times are returning to normal for most of our suppliers, while some of our smaller suppliers are struggling to remain staffed up enough to keep up with orders.” [Food, Beverage & Tobacco Products]
• “The continued uncertainty in the economy has resulted in customers delaying their commitments for capital purchases, which is impacting our fourth quarter sales and lowering our forecast for the first quarter of 2023.” [Machinery]
• “Business is slowing down and forecast to decrease by the end of the first quarter or second quarter.” [Fabricated Metal Products]
• “Trying hard to keep the wheels moving to close out the year strong. The manufacturing plants are nearing their annual outage periods, and some TLC is needed to keep things running.” [Nonmetallic Mineral Products]
• “Finished the year strong, and we are pleased with how the year shaped up.” [Primary Metals]
• “New China technology trade restrictions have impacted our business and plans going forward.” [Electrical Equipment, Appliances & Components]
• “Overall, supply chain conditions have stabilized tremendously since the fourth quarter of 2021. Issues remain, but the list is quite a bit shorter. Customer demand is very strong, and the outlook is positive for 2023. There is large focus on margin recovery after this period of high inflation.” [Miscellaneous Manufacturing]

The index is below 50 for the 2nd consecutive month, but both the ISM and the JOLTs showed a pickup in employment. Inflation was lower, however.

EUR/USD Live Chart