Market Prep: U.S. Manufacturing Ends 10-Month Slump
Hello Traders,
Today’s ISM Manufacturing data surprised the market by ending a 10-month losing streak. While growth is usually good news, it creates a new challenge: when factories are busy and orders are surging, prices tend to stay high, making it harder to beat inflation.
The Demand Surge: New Orders at 57.1
The New Orders Index jumped to 57.1 (up from 47.4 in December), its highest level since early 2022. This is a double-edged sword. While it shows the economy is strong, this level of demand threatens to restart the inflation the Federal Reserve has been trying to stop.
The Inflation Warning: Prices Paid at 59.0
The Prices Paid Index rose to 59.0, meaning manufacturers are paying more for raw materials and shipping.
The Result: Companies will likely pass these higher costs to consumers, leading to “sticky” inflation.
The Fed’s Move: Because inflation remains a threat, the Federal Reserve is unlikely to cut interest rates soon. They will likely keep rates high to keep the economy from overheating.
The Dollar Rebound (FX Volatility)
Higher interest rates make the U.S. Dollar more attractive to investors than the Euro.
The Failed Breakout: The EUR/USD pair tried to break above the 1.20 level and failed.
The Market Shift: Traders who were betting against the Dollar are now rushing to buy it back. This “short covering” is pushing the Dollar’s value higher.
The Bottom Line
US Dollar: Expect the Greenback to remain strong or trend higher for now.
Interest Rates: A rate cut in March is now highly unlikely.
Trading Strategy: The “Sell the Dollar” momentum has stalled. Most institutional traders are now pivoting to Buy the Dollar following this data.
Trade Ideas and Trading Book
