US Non-Manufacturing PMI July Preview: Second thoughts on the USD sell-off on strong report

Services activity is predicted to moderate in July after sharp June recovery while second wave Covid cases had little impact on manufacturing PMI. Minimal market effect is anticipated with payrolls awaiting on Friday but upbeat figures could pave the way for the dollar recovery, Joseph Trevisani, an analyst at FXStreet, reports.

Key quotes

“The purchasing managers’ index from the Institute for Supply Management (ISM) is expected to slip to 55 from June’s unexpectedly strong score of 57.1. Sentiment last month nearly matched the pre-pandemic level in February of 57.3.”

“New orders are projected to rise to 64.7 in July from 61.6 in June which was the highest reading since February’s 63.1 and the second best outlook in a year while employment is forecast to climb into expansion at 51.1 from 43.1 in June. The prices paid index is expected to be 64 in July up from 62.4 the previous month.”

“The performance of the July manufacturing PMI is the strongest indicator that the service sector outlook will be untouched by the supposed negative impact of the second wave of the Covid pandemic. That implication is backed by the strong housing sales and Fed manufacturing surveys which showed no drop in consumer or manufacturing activity but countered by the notable decline in consumer sentiment.”

“Currency markets have sold the US dollar to pre-pandemic levels over the last three weeks largely on anticipated economic weakness. That stance is unlikely to change until the July non-farm results on Friday, though a stronger than forecast services PMI will probably spur some serious second thoughts.”