The ISM Services reading turned out to be unfavorable for the dollar. This key macroeconomic indicator remained in expansion territory but showed a downward trend, contrary to growth expectations. Many components of the report also disappointed, reflecting a slowdown in the growth of the U.S. services sector.
Interestingly, the dollar virtually ignored the release, as market participants focused on statements from Donald Trump, who spoke about the prospects of a trade deal with China and the possibility of introducing 35% tariffs against the EU. His rhetoric pressured the euro, while the dollar temporarily strengthened due to a rise in risk-off sentiment.
Still, the ISM Services report should not be ignored—and certainly, Trump should not be considered an "ally" of EUR/USD sellers. Political statements are short-lived, whereas key macroeconomic indicators have a much longer-lasting impact. Therefore, the report will likely resurface again, and not in a favorable light for the dollar.
According to the data released, the ISM Services PMI fell to 50.1 in July, while most analysts had forecast an increase to 51.5.
What does this result indicate? First and foremost, the sector is barely staying in expansion territory. For the second consecutive month, the index has come in near the 50 mark (50.8 in June, 50.1 in July), which essentially signals a lack of growth. Key subindexes also paint a rather bleak picture. For example, new orders declined (50.3), reflecting weak demand dynamics. The employment index dropped to 46.4, signaling a reduction in hiring. Meanwhile, the Prices Paid index rose to 69.9—the highest level in nearly three years. This combination of slowing demand and rising costs is a concerning sign of possible stagflation, where weak growth is accompanied by inflationary pressure.
Overall, the July index showed an almost complete halt in expansion of the U.S. services sector: minimal growth, weak demand, declining employment, and rising prices. The sector is teetering on the edge of stagnation.
Recent data paints a troubling picture: the labor market is cooling, manufacturing is shrinking (the ISM Manufacturing Index fell to 48.5), prices continue to rise, and the services sector is barely holding above water, with clearly weak demand. Moreover, the 3% U.S. GDP growth in Q2 was driven by a drop in imports—not by domestic demand or production volume. This, combined with a weak labor market, falling PMIs, and rising costs, points to structural issues in the U.S. economy.
So why did traders virtually ignore the ISM Services report? On one hand, the release extinguished the downward impulse (the intraday low was recorded at 1.1529), but on the other hand, it did not serve as a catalyst for EUR/USD growth—buyers are still struggling with the resistance level at 1.1590 (Tenkan-sen line on the daily chart).
In my view, market participants are exercising caution due to the conflicting rhetoric from Trump, who is sending both reassuring and alarming signals. For instance, the U.S. president stated that the United States is "very close to a deal with China." He expressed confidence that Washington would "strike a very good agreement with Beijing." He also did not rule out a meeting with Chinese President Xi Jinping later this year.
It's important to recall that the trade truce with China is set to expire on August 12, so even vague and generalized comments from Trump triggered volatility.
The U.S. president also said that he would raise tariffs on the European Union to 35% "if Brussels fails to meet its commitments to invest in the American economy." For reference, after recent negotiations, the EU pledged to invest 600 billion dollars in the U.S. and purchase 750 billion dollars' worth of energy resources over the next three years. Many Western experts have said that fulfilling this agreement is "highly unlikely." According to them, to meet this target, the U.S. would need to redirect nearly all of its energy exports to the EU. It seems the statement from Trump was a reaction to such skepticism.
But, as mentioned earlier, these kinds of fundamental factors (i.e., political statements) have a short shelf life. Meanwhile, the weak ISM Services print (alongside slowing data elsewhere) is a serious blow to the greenback. Therefore, shorting EUR/USD is risky, while buying is still premature—at least until buyers break through the resistance level at 1.1590 (Tenkan-sen line on the D1 time frame). If the pair manages to overcome this price barrier, the next upside targets will be 1.1630 and 1.1660 (the middle Bollinger Band on D1 and the upper Bollinger Band on H4, respectively).
