US Dollar Sell-Off Stalls After Strong US ISM Services Report

• US ISM services data beats market forecasts.
• US dollar grabs a small bid but remains under pressure ahead of NFPs .

The latest ISM services report shows US business activity in robust shape with the headline index beating forecasts and last month’s reading by a margin.

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According to Anthony Nieves, Chair of the Institute for Supply Management (ISM),

“The increase in the composite index in May is a result of notably higher business activity, faster new orders growth , slower supplier deliveries and despite the continued contraction in employment. Survey respondents indicated that overall business is increasing, with growth rates continuing to vary by company and industry. Employment challenges remain, primarily attributed to difficulties in backfilling positions and controlling labor expenses. The majority of respondents indicate that inflation and the current interest rates are an impediment to improving business conditions.”

The US dollar picked up a small bid after the ISM data, stemming this week’s losses. The US dollar index has sold off after hitting at two-week high last Thursday, fuelled by slightly better-than-expected US inflation, last Friday’s weak Chicago PMI – 35.4 vs. 41 forecast – and this week’s worse-than-forecast JOLTs and ADP jobs reports.

Tuesday June 4th

Wednesday June 5th

The recent sell-off has pushed the US dollar index below all three simple moving averages and has broken a multi-month series of higher lows. The 200-day sma, the recent uptrend, and the 38.2% Fibonacci retracement are all acting as near-term resistance. Friday’s US Jobs Report (NFP) has now become the main release of note, and any further signs of weakness in the US jobs market could cause the dollar to fall further. US dollar traders should also follow tomorrow’s ECB policy decision, where President Lagarde is expected to announce a 25 basis point interest rate cut . If Ms. Lagarde hints at a second cut at the July meeting, the Euro will weaken, giving the US dollar index a boost. The Euro makes up around 58% of the dollar index.

US Dollar Index Daily Chart

Chart by TradingView