The US dollar has turned bearish after the poor ISM services data for June, which showed that activity in this sector fell in contraction. Consequently, USD/JPY slipped below its 100-hour moving average of 161.15, hitting a low of 160.77. In contrast, EUR/USD exhibited bullish momentum ahead of the ISM services report, breaking through a cluster of moving averages and climbing above 1.08.

GBP/USD also advanced, testing the peak of a swing region at 1.2777. The price is now moving significantly above its 100 and 200 moving averages on the four-hour chart, positioned at 1.2689 and 1.2714, respectively. If the price surpasses 1.2777, it could fuel additional upside momentum.

There was a significant decline in business activity, new orders, and backlog of orders, which highlights a concerning slowdown in the services sector. The drop in new export orders further underscores weakening international demand. The inventory sentiment increase suggests that businesses feel inventories are too high relative to current demand, reflecting caution in future purchasing.

These declines collectively indicate that the services sector is facing substantial headwinds, with the overall PMI contraction reinforcing concerns about a broader economic slowdown. This could impact future Federal Reserve policy decisions as they navigate through these economic challenges

ISM Services PMI for June 2024

• Overall PMI: 48.8 vs. 52.5 estimate (Prior: 53.8)
• Business Activity Index: 49.6 vs. 61.2 last month
• Employment Index: 46.1 vs. 47.1 last month
• New Orders: 47.3 vs. 54.1 last month
• Prices Paid: 56.3 vs. 58.1 last month
• Supplier Deliveries: 52.2 vs. 52.7 last month
• Inventories: 42.9 vs. 52.1 last month
• Backlog of Orders: 44.0 vs. 50.8 last month
• New Export Orders: 51.7 vs. 61.8 last month
• Imports: 44.0 vs. 42.8 last month
• Inventory Sentiment: 64.1 vs. 57.7 last month

Key Observations

The ISM Services PMI for June dropped to 48.8, missing the estimate of 52.5 and significantly down from the prior month’s 53.8. This marks the lowest level in four years. Several components of the index experienced notable declines:

• Business Activity: Fell sharply to 49.6 from 61.2, indicating a contraction.
• New Orders: Dropped to 47.3 from 54.1, showing reduced demand.
• Backlog of Orders: Decreased to 44.0 from 50.8, suggesting a slowdown in future activity.
• New Export Orders: Plunged to 51.7 from 61.8, reflecting weaker international demand.
• Inventories: Declined to 42.9 from 52.1, indicating inventory drawdowns.
• Employment: Slightly lower at 46.1 from 47.1, pointing to weakening labor market conditions within the services sector.

Here are some insights from various industries based on recent comments:

Accommodation & Food Services

“Sales and traffic remain soft compared to last year. High gas prices in California and constant news about inflation and restaurant menu prices are culprits.”

Construction

“Costs seem to have stabilized but are still higher. The company is holding steady to see what the election will hold.”

Educational Services

“Currently, our operations are normal, but we are experiencing slightly higher costs due to the increase in fuel. We are at the end of our fiscal year, when an increase in expenditures is typical.”

Finance & Insurance

“Steady, with no major shifts in pricing or availability of services.”

Health Care & Social Assistance

“Demand for services has moderated after near-record patient levels in the last month.”

Management of Companies & Support Services

“We are still experiencing supply chain challenges with the increased cost of chemicals, as well as the domestic and overseas freight costs associated with them.”

Public Administration

“Slightly higher prices across the board, but less pricing pressure for some items. Still long lead times for heavy equipment, fire apparatus, ambulances and the like.”

Retail Trade

“Inflation continues to be a general concern for both purchasers and sellers. For example, with inflation continuing, will customers have enough discretionary funds to spend?”

Utilities

“Supply issues have calmed down. Prices on many products remain high, with no sign of decreases.”

Wholesale Trade

“Market seems to be slowing in June. This is complicated by increased ocean freight rates and tight container bookings.”

EUR/USD Live Chart