Breakdown of the latest developments on the global exchanges
Sep 1, 2020, 4:29 PM GMT

US Manufacturing Advances in August on a Drastic Surge in Demand

The ISM Manufacturing PMI data in the US beat the initial forecasts, signifying robust recovery of industrial activity.

The Institute for Supply Management reported that the index climbed to 56.0 points in August, whereas the consensus projections were anticipating a much smaller improvement to 54.6 points.

The unexpected improvement in manufacturing is attributed to a considerable surge in new orders, as well as the gradual normalisation of the sector. The latter is induced by the steady easing of containment restrictions.

Recuperating industrial activity, manufacturing, in particular, is a necessary prerequisite for a solid recovery. This is already seen in China, where manufacturing has been stabilising ever since the lockdown in Hubei was terminated.

The stabilisation of the US manufacturing sector is welcoming news for FED Chair Jerome Powell, who expressed certain concerns over the likelihood of a lengthy and uneven recovery last week.

This positive surprise is unlikely to bring an end to the woes for the reeling dollar by itself. Non-Manufacturing PMI data in addition to the release of the Non-Farm Payrolls at the end of the week is going to shed more light on the current state of the American economy.

However, the dollar gained some momentum in the short-term, immediately following the publication of the ISM manufacturing data.

As can be seen on the 15M chart below, the EURUSD pair rebounded from the psychologically significant resistance level at 1.20000 and went on to break down below the two moving averages – the 50-day MA (in blue) and the 30-day MA (in green).

The latter crossed below the former, which demonstrates heightened bearish sentiment in the short run. The price action is likely to resume falling for as long as it remains trading below the two MAs.

Accordingly, the EMAs comprising the MACD indicator started falling as well, which represents a strong signal of increasing bearish momentum.

Despite all of this, however, the greenback continues to be massively strained, which, as already mentioned, is a trend that is not going to be terminated easily.

More robust data is needed to convince traders and investors that the tentative recovery in the US is not threatened by a potential resurgence in the number of COVID-19 cases.