Conditions in US non-manufacturing sector – which accounts for approximately 70 percent of total economic activity in the country and includes retail, services, and finance – are anticipated to remain contractionary in April, as the Institute for Supply Management index is estimated to fall to 49.5 from 49.6. However, there is a chance this figure could be a bit better than forecasted, as employment in the services sector surged during April.

What Are the Markets Facing?

Conditions in US non-manufacturing sector – which accounts for approximately 70 percent of total economic activity in the country and includes retail, services, and finance – are anticipated to remain contractionary in April, as the Institute for Supply Management index is estimated to fall to 49.5 from 49.6. However, there is a chance this figure could be a bit better than forecasted, as employment in the services sector surged during April. Indeed, according to both the ADP employment report and Non-Farm Payrolls, the services sector was one of the only areas to hire additional workers during that period, while goods producing companies are practically bleeding workers. If ISM Non-Manufacturing manages to jump above the 50 mark – signaling expansion – the news will only add to speculation that the Federal Reserve will leave rates unchanged when they meet again in late June, especially as the most recent FOMC policy statement signaled a pause and fed fund futures currently only price in a 16 percent chance of a 25bp cut to 1.75 percent.

Bonds – 10-Year Treasury Note Futures

A daily chart of Treasuries shows price wedged between significant support at the psychologically important 115 level and resistance from a falling trendine and the 100 SMA at 116-16. This consolidation signals some potential for a breakout, and Friday’s heavy test of 115 suggests the break may be to the downside. The next level of support looms at 114-20, while a weekly pivot low sits at 114-07. Upcoming event risk for Treasuries includes the release of ISM non-manufacturing, and there is a chance the news could be better than expected, which could trigger a sharp selloff in the contract. On the other hand, if the figures are disappointing or risk aversion becomes the dominant role in the markets once again, Treasuries could bounce.

FX – EUR/USD

EUR/USD remains very heavy, and our FXCM Speculative Sentiment Index for the pair flipped to a positive reading this week for the first time since 2006. As a contrarian indicator, the flip suggests that we could see a further weakness in the EUR/USD over the next few weeks. Furthermore, as Technical Strategist Jamie Saettele mentioned in Friday’s Daily Technical Report, “The EURUSD has fallen nearly 600 pips (to the low) from its 1.6018 top. So, is it possible that the pair is entering one of the strongest portions of its decline since the top? In a word; yes. As long as price remains below 1.5643, the short term structure is bearish and support does not begin until 1.5230.” However, following Friday’s post-NFP plunge to a low of 1.5359, EUR/USD has recovered above immediate Fibonacci support at 1.5395. Monday’s US economic data could push the pair in either direction, though there is some potential that ISM non-manufacturing will be better-than-expected, which would support the case for additional EUR/USD losses toward 1.5230. On the other hand, a disappointing reading would allow the pair the opportunity to hold above 1.5400 for just a bit longer, though it appears price will ultimately tumble further.

Equities – Dow Jones Industrial Average

The Dow Jones Industrial Average managed to hold above the psychologically important 13,000 on Friday, however, has it hit a turning point? On Friday, the index ran into resistance at the confluence of an ascending trendline and the 200 SMA at 13,050, and the long wick suggests that bulls may not be able to push price much higher. Furthermore, according to Technical Strategist Jamie Saettele’s Elliott Wave analysis, “This is evidence of a bear market in its early stages and wave iii of 3 is ready to begin...If so, then a major decline is upon us.” Upcoming US ISM non-manufacturing may not play a huge role in price action for the DJIA, as risk trends may become the biggest culprit once again. Indeed, the Federal Reserve’s continued efforts to boost liquidity via the Term Securities Lending Facility and the Term Auction Facility suggests that the credit crunch is far from over.

Terri Belkas is a Currency Strategist at FXCM.