Summary:

• ISM non-manufacturing PMI for July falls further than expected to 53.9
• Lowest print in almost a year flashes warning signal for services sector
• US dollar falls back near to multi-year low 

The last significant US data release ahead of tomorrow’s NFP has disappointed the markets with the ISM non-manufacturing PMI for July dropping to 53.9 from 57.4 previously. The reading is the lowest since last August’s and comes in well below the consensus expectation of a 56.9 print. 

 

 Today’s drop in the ISM non-manufacturing comes as a negative surprise. Whilst it is the lowest in 11 months, in historic terms it is still relatively high. Source: Macrobond, XTB Research

In the longer term perspective this reading isn’t a disaster but given the elevated expectations and recent strong prints (the last three readings have all been comfortably above 56.0) it is has done little to help the US dollar. The USDJPY is currently testing its recent low around the 110 handle and if the market breaks below here then further declines to 109 are possible.  

 The USDJPY has trended nicely within trend channels lately. The market is now testing the 110 handle and has almost completed a round trip of the rally seen in June. Source: xStation

One final point not to be missed in the ISM release is the employment and new order components. Both of these experienced similar size declines to the headline number with employment falling to 53.6 from 55.8 and new orders declining to 55.1 from 60.5. The employment could be particularly key going into tomorrow’s NFP.