Date: 01 Jul 2019

The new trading week and month starts with a slew of global manufacturing data releases, with the June ISM manufacturing report headlining the economic calendar on Monday. The main point of contention for investors will be the ISM headline reading, as the most important indicator of the U.S manufacturing situation teeters close to contraction territory.

Market optimism is currently buoyant after the world’s two largest economies agreed to continue trade talks as U.S President Donald Trump and Chinese President Xi Jinping called a trade truce at the G20 summit over the weekend, and agreed not to impose any additional trade tariffs as both sides try to find a long-lasting trade deal.

The June ISM manufacturing survey is to expected to show a 51.0 reading later today, which is slightly worse than the 52.1 reading seen in May. The last official ISM reading was the weakest since August 2016, further underscoring the impact that the Sino-U.S trade war is having on the American manufacturing sector and further raising concerns that the U.S economy is starting to slowdown.

A sub-50.0 ISM reading today could significantly dampen market sentiment today and put additional pressure on the United States and Chinese trade negotiators to strike a trade deal to avoid further economic harm on both economies. A strong ISM reading is also vital for GDP growth, leaving the second-quarter U.S GDP reading open to disappointment in comparison to the robust first quarter 3.1 percent figure.

Another component to today’s ISM is the Federal Reserve; continued or a much weaker than expected reading sets the stage for a series of rate cuts from the FED. The market’s reaction to the ISM survey should also be a leading indicator as to the extent to which the Federal Reserve is likely to cut rates. Traders attention is will also be focused on gold and the U.S Dollar in the aftermath of the ISM report release.

 

USD/JPY Daily Mountain Chart | Source: ActivTrader

USD/JPY Daily Mountain Chart | Source: ActivTrader

 

The Japanese yen has opened Monday trade to the downside against the U.S Dollar, with the USD/JPY pair currently trading well-above the 108.00 handle due to improved risk-sentiment in financial markets. Key upcoming resistance is found at the 108.45 and 109.00 levels, with key support found at the 107.80 and 107.00 levels. A clear break of the 109.00 level will open-the-door for a much stronger technical correction toward the 109.80 level for the USD/JPY pair.

 

Written by Nathan Batchelor, External Analyst, ActivTrades

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