What's what about ISM today

FXStreet (Moscow) - It’s a calm week in the USA after feverish days of FOMC meeting and Non-Farm Payrolls report. This week we have just non-manufacturing ISM, factory orders, non-farm productivity, and that’s all. Modest collection, but still potentially powerful in terms of market reactions. The ISM non-manufacturing survey is, probably, the most important of the lot. According to the median forecasts the number improved to 56.3 in July from 56.0 in June and thus recovered from temporary weak spot. Economists are positive about non-manufacturing ISM as the latest service sector surveys have brightened and brought hope for higher business activity in service segment – one of the most important in the American economy. ISM Manufacturing survey surprised us with its unexpected jump to 57.1 in July from 55.3 in June (median forecast 56.1). It’s the best number since August 2011 that comes in line with other activity surveys (Richmond FED survey skyrocketed 6 pts to 12, while Dallas index gained one point to 22.4).

Thus it is but natural to wait for positive non-manufacturing ISM number, that has a good chance to exceed median expectations. Employment component will be closely watched as well. It has been growing steadily for three months in a row and the chances are that it will increase in July, despite dismal Non-Farm Payroll data published last Friday. This will both confirm the idea that the US economy is on mend and dispel the doubts about the validity of better-than-expected GDP growth.

Regarding market reactions, this report might become an acid test for USD nascent strength that came under threat following weaker than expected June labour market statistics. Should the dollar manage reverse Friday losses, on positive non-manufacturing ISM data, further upside dynamic could gain momentum. On longer-term basis, USD is poised to grow against EUR, JPY and other low-yielding currencies where central banks have to deal with deflation threats. Though in the near term the key question is whether USD bulls take a short pause before a new rush higher, or jump into action right away.