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U.S. Dollar (DXY) Rallies As ISM Manufacturing PMI Exceeds Expectations

By:
Vladimir Zernov
Published: Sep 1, 2022, 14:36 UTC

USD/JPY tested the key 140 level. GBP/USD moved to new lows near 1.1500, while EUR/USD retreated towards 0.9950.

U.S. Dollar (DXY) Rallies As ISM Manufacturing PMI Exceeds Expectations

In this article:

Key Insights

  • U.S. dollar gained strong upside momentum after the release of the better-than-expected ISM Manufacturing PMI report. 
  • USD/JPY has finally managed to test the important 140 level. 
  • GBP/USD declined towards the 1.1500 level as traders remained focused on the bleak outlook for the UK economy. 

U.S. Dollar Tests New Highs

U.S. Dollar Index (DXY) is testing yearly highs after the release of the ISM Manufacturing PMI report for August. The report indicated that ISM Manufacturing PMI remained unchanged at 52.8, while analysts expected that it would decline to 52.

Earlier, Initial Jobless Claims report showed that 232,000 Americans filed for unemployment benefits in a week, compared to analyst consensus of 248,000.

The strong reports provided significant support to the American currency. The U.S. economy is in a decent shape, so the Fed can raise rates aggressively, which is bullish for the U.S. dollar.

EUR/USD Settles Back Below 1.0000

EUR/USD moved below the 0.9950 level after the release of the ISM Manufacturing PMI report. Traders rush to the safety of the U.S. dollar, and the euro does not have material upside catalysts.

EUR/USD

EUR/USD failed to settle above the 20 EMA at 1.0050 and moved towards the support area in the 0.9900 – 0.9950 range. This support area has been tested many times and proved its strength. In case EUR/USD manages to settle below 0.9900, the sell-off may intensify.

GBP/USD Tests New Lows

GBP/USD is sliding towards the 1.1500 level as the pound fails to find any buyers. The yield of UK 10-year bonds has reached 2.90%, a level that was last seen back in 2011.

However, these levels are not sufficient to attract buyers as 10-year Treasuries yield 3.27%, while the near-term outlook for the UK economy remains bleak.

GBP/USD is oversold after the strong sell-off, but it remains to be seen whether it will get any support in the near term.

Commodity-Related Currencies Retreat

AUD/USD declined towards the 0.6800 level amid a strong pullback in commodity markets. NZD/USD declined to 0.6070. Meanwhile, USD/CAD tested the resistance at 1.3200.

Strong dollar is bearish for commodities, so the pressure on commodity-related currencies may grow in the upcoming trading sessions.

USD/JPY Tests The 140 Level

USD/JPY is currently trying to settle above the psychologically important 140 level. The Japanese yen has not been that weak against the U.S. dollar since 1998!

The key question is whether the BoJ will intervene to protect the yen. The weak yen may help the export-oriented economy by making its goods cheaper. However, Japan is a major importer of energy and commodities, which are denominated in U.S. dollars. Thus, Japan will suffer from high energy prices due to the weak yen.

Traders will have to closely monitor the dynamics of USD/JPY to see whether the BoJ decides to intervene. In case there are no signs of interventions, USD/JPY will have a good chance to settle above 140.

For a look at all of today’s economic events, check out our economic calendar.

About the Author

Vladimir is an independent trader and analyst with over 10 years of experience in the financial markets. He is a specialist in stocks, futures, Forex, indices, and commodities areas using long-term positional trading and swing trading.

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