The US ISM Manufacturing PMI for February is due at 15:00 GMT. The index is forecast at 51.8, down from 52.6 in January, with 50.0 marking the line between expansion and contraction. In January, the PMI rose above 50.0 for the first time after 10 straight months below that level. Other ISM measures in focus include the Employment Index, Prices Paid, and New Orders Index.

Key Inflation Signal

The ISM Manufacturing Prices Paid index is forecast at 59.5, up from 59.0. This measure tracks changes in input costs such as labour and raw materials. If the PMI is weaker than forecast, markets may price in more Federal Reserve rate cuts; stronger data may reduce those expectations. EUR/USD was 0.75% lower near 1.1730 and below the 20-day exponential moving average near 1.1800. The 14-day RSI moved towards 40.00 after failing to regain 60.00, with added downside momentum if it drops below 40.00. Support levels are cited at 1.1645, then the mid-1.1500 area and 1.1489, while resistance is at 1.1800, then 1.1880 and 1.2030. The ISM PMI is a monthly survey-based gauge of US factory activity, with readings above 50 indicating expansion and below 50 indicating decline. It is treated as a leading indicator, with Prices Paid and Employment also monitored for inflation and labour conditions.

Market Positioning Ahead Of The Release

With the February ISM Manufacturing PMI data due for release today, we are watching closely to see if the manufacturing sector shows signs of life. The January reading came in at a disappointing 49.1, and the market consensus for today is a slight improvement to 49.5, still in contraction territory. A number below this forecast would signal deepening economic weakness. We remember a similar situation in early 2025, when manufacturing activity briefly expanded for the first time after a 10-month slump through most of 2024. That recovery was not sustained, teaching us that a single month of positive data is not a confirmed trend. This past fragility informs our cautious approach to today’s numbers. The sub-components of the report are just as important as the headline number, especially the Prices Paid Index. Given that the latest CPI data showed core inflation remains sticky at 2.8%, a high Prices Paid figure would create a headache for the Federal Reserve. It would suggest inflationary pressures are persisting even as the broader manufacturing economy struggles. A weak headline PMI, especially a fall below 49.0, will likely increase market expectations for a Fed interest rate cut by the summer. Currently, futures markets are pricing in about a 50% chance of a cut by June, so a poor reading could push those odds much higher. On the other hand, a surprise jump above 50 would reduce those odds and strengthen the US dollar. Derivative traders should consider that implied volatility is relatively low ahead of this release. This makes buying options attractive, as a significant surprise in either direction could cause a sharp market move. A long straddle on a major currency pair like EUR/USD could be a viable strategy to profit from a volatility spike, regardless of the direction. For those with a directional view on EUR/USD, currently trading around 1.0850, a much weaker-than-expected PMI could be the catalyst to push the pair above resistance at 1.0950. A surprisingly strong number could send it down to test support near 1.0750 in the coming weeks. Using call or put options can define risk for traders wanting to position for these specific outcomes. Create your live VT Markets account and start trading now.

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