US ISM Manufacturing PMI April Preview: Gloom persists despite expanding US economy

• The ISM Manufacturing PMI is set to rise to 47.0 from 46.9, New Orders seen higher at 45.5.
• The ISM Prices Paid Index is seen expanding to 50.4 from 49.2 in the previous month.
• Purchasing Managers’ Index will be released by the ISM at 14:00 GMT.

The main Manufacturing Purchasing Managers’ Index (PMI) in the United States will be released by the Institute of Supply Management (ISM) in its Report on Business, where the latest manufacturing business survey result is displayed, at 14:00 GMT this Monday.

What to expect from the ISM manufacturing PMI report?

The most important manufacturing PMI in the United States is expected to have risen slightly to 47.0 in April from the 46.3 figure booked in March.

Among the sub-components of the report, the focus will be on Prices Paid as it reflects business sentiment around future inflation. The Manufacturing Prices Paid sub-index is likely to return to expansion, with a 50.4 expected for April. In March, the gauge stood at 49.2.

The ISM Manufacturing Employment Index is also seen a tad higher at 47.9 in the fourth month of the year while the New Orders Index for April is foreseen at 45.5 vs. March’s 44.3.

In March, the ISM survey showed that all subcomponents of its manufacturing PMI were below the 50 threshold for the first time in 14 years. The headline index tumbled to its lowest level in three years, as new orders plunged. The US Federal Reserve’s (Fed) relentless tightening to fight inflation raised borrowing costs and cooled demand for goods.

The data will provide a fresh update on the health of the US manufacturing sector amid tighter financial conditions and growing recession risks, especially after Thursday’s US Gross Domestic Product (GDP) data for Q1.

Apart from the US economic data, investors will track the broader market sentiment in the lead-up to Wednesday’s Federal Reserve policy announcements.

Analysts at TD Securities offer a brief preview of the key macro data and explain: 

“Surveys already released point to a small rebound for both the ISM manufacturing and services indexes in April following their twin declines in March to 46.3 and 51.2, respectively. We look for the ISM Manufacturing index to advance modestly to a less dire level at 47.5. The services index likely rose as well but to 52.2, indicating a modest improvement in the pace of expansion for the sector."

When will the ISM manufacturing Purchasing Managers’ Index report be released and how could it affect EUR/USD?

The ISM Manufacturing PMI report is scheduled for release at 14:00 GMT, on May 1. Ahead of the key release, the US Dollar staged a decent comeback from two-week lows, fuelling a corrective downside in the EUR/USD pair toward 1.1000. The main currency pair hit a new 13-month high at 1.1096 last Wednesday.

A stronger headline print will bolster bets for a 25 basis points (bps) Fed rate hike move in early May. This, in turn, should fuel a fresh leg higher in the US Treasury bond yields, aiding the recovery of the US Dollar.

Last week, even though the headline US Q1 GDP number missed estimates of 2.0% QoQ by a wide margin at 1.1%, resilient personal consumption, inventories accumulation and a higher inflation component grabbed investors’ attention and ramped up odds of a quarter percentage point Fed rate hike next week to 86%. At the start of the week, the probability of a 25 bps Fed May rate hike stood at around 75%.

However, a softer report could act as a headwind to the ongoing recovery momentum in the US Dollar. The US Dollar decline could follow, driving the EUR/USD pair back toward the yearly top.

Traders will also pay close attention to the ISM survey's forward-looking New Orders sub-index, the Prices Paid component and the measure of factory employment for fresh implications on the Fed’s interest rates outlook. Markets could resort to repositioning ahead of the all-important Federal Reserve interest rates decision, which could affect the pair’s reaction to the ISM survey.

Eren Sengezer, Editor at FXStreet, offers a brief technical overview of the EUR/USD and writes: “Despite the pullback seen in the second half of the previous week, EUR/USD manages to hold above the 20-day Simple Moving Average, currently located at 1.0970. Meanwhile, the Relative Strength Index (RSI) indicator on the daily chart stays slightly above 50, reflecting the lack of bearish pressure for the time being”

"If buyers fail to defend 1.0970, additional losses toward 1.0900 (psychological level) and 1.0800 (50-day SMA) could be witnessed," Eren adds further. "In case the pair stabilizes above 1.1000 and continue to use this level as support, it could face interim resistance at 1.1050 (static level) before targeting fresh multi-month highs at 1.1100."

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About the US ISM manufacturing PMI

The Institute for Supply Management (ISM) Manufacturing Index shows business conditions in the US manufacturing sector. It is a significant indicator of the overall economic condition in the US. A result above 50 is seen as positive (or bullish) for the USD, whereas a result below 50 is seen as negative (or bearish).