The ISM Manufacturing PMI report is scheduled for release at 14:00 GMT, on May 1. Ahead of the key release, the US Dollar staged a decent comeback from two-week lows, fuelling a corrective downside in the EUR/USD pair toward 1.1000. The main currency pair hit a new 13-month high at 1.1096 last Wednesday.
A stronger headline print will bolster bets for a 25 basis points (bps) Fed rate hike move in early May. This, in turn, should fuel a fresh leg higher in the US Treasury bond yields, aiding the recovery of the US Dollar.
Last week, even though the headline US Q1 GDP number missed estimates of 2.0% QoQ by a wide margin at 1.1%, resilient personal consumption, inventories accumulation and a higher inflation component grabbed investors’ attention and ramped up odds of a quarter percentage point Fed rate hike next week to 86%. At the start of the week, the probability of a 25 bps Fed May rate hike stood at around 75%.
However, a softer report could act as a headwind to the ongoing recovery momentum in the US Dollar. The US Dollar decline could follow, driving the EUR/USD pair back toward the yearly top.
Traders will also pay close attention to the ISM survey's forward-looking New Orders sub-index, the Prices Paid component and the measure of factory employment for fresh implications on the Fed’s interest rates outlook. Markets could resort to repositioning ahead of the all-important Federal Reserve interest rates decision, which could affect the pair’s reaction to the ISM survey.
Eren Sengezer, Editor at FXStreet, offers a brief technical overview of the EUR/USD and writes: “Despite the pullback seen in the second half of the previous week, EUR/USD manages to hold above the 20-day Simple Moving Average, currently located at 1.0970. Meanwhile, the Relative Strength Index (RSI) indicator on the daily chart stays slightly above 50, reflecting the lack of bearish pressure for the time being”
"If buyers fail to defend 1.0970, additional losses toward 1.0900 (psychological level) and 1.0800 (50-day SMA) could be witnessed," Eren adds further. "In case the pair stabilizes above 1.1000 and continue to use this level as support, it could face interim resistance at 1.1050 (static level) before targeting fresh multi-month highs at 1.1100."
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