The U.S. ISM Manufacturing PMI for June gave traders a key read ahead of the all-important NFP report. How did our USD watchlist setups for this top-tier event fare?
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The Setup
Event Outcome:
The June ISM manufacturing PMI report printed slightly better than expected results, as the index climbed from 48.5 to 49.0 during the month versus the 48.8 consensus. While the reading reflected an improvement, it still remained below the 50.0 threshold and indicated industry contraction.
Key points from the PMI report:
- Manufacturing PMI rose to 49.0 from 48.5 in May, showing modest improvement but remaining in contraction territory for the fourth straight month
- Production Index returned to expansion at 50.3, up from May’s 45.4
- New Orders Index fell to 46.4 from 47.6 in May
- Employment Index dropped to 45.0 from 46.8
- Prices Index climbed to 69.7 from 69.4
This report was released in tandem with several other data points and events, including a net positive JOLTs U.S. job openings data, a net positive PMI read from S&P Global, and less dovish comments from Fed Chair Powell. While the ISM U.S. Manufacturing PMI update was net contractionary but improved, all combined with the other catalysts of the day, we leaned net bullish bias on USD at that point.
Fundamental Bias Triggered: Bullish USD Setups
Market sentiment gradually shifted toward risk-on in the days leading up to the ISM release. Canada’s decision to drop its Digital Services Tax on June 30 helped ease trade tensions while Goldman Sachs pulled its Fed rate cut forecast forward to September as Trump publicly called for 1% interest rates. Fed Chair Powell struck a measured tone during his July 1 testimony, keeping rate cuts on the table but stressing the need to assess the impact of tariffs.
Risk appetite picked up again after the Senate passed Trump’s $3.3 trillion fiscal package, despite growing concerns about rising debt levels. Optimism strengthened further when Trump announced a Vietnam trade agreement on July 2.
U.S. data added to the uncertainty. A strong JOLTS report, with 7.77 million job openings, lent support to the dollar. However, the ADP report showed a surprise drop of 33,000 private-sector jobs, prompting traders to revisit the idea of Fed rate cuts. Iran’s suspension of nuclear cooperation added another layer of volatility, pushing oil prices up 3%.
On Thursday, the June US nonfarm payrolls update crushed expectations at 147k, prompting immediate strength in the Greenback. Unfortunately for USD bulls, this was a short-lived reaction, as within an hour, most of those gains had evaporated, suggesting traders were perhaps taking profits, concerned with the underlying metrics, or questioning the sustainability of the move.
USD/JPY: Bullish USD Event outcome + Risk-On Scenario = Arguably best odds of a net positive outcome
USD/JPY 1-hour Forex Chart Chart by TradingView
In our watchlist, we anticipated that USD/JPY could find support near the 143.00-143.50 area if the ISM data surprised to the upside. Our thesis was based on the combination of a potentially stronger USD from better economic data and the unwinding of safe-haven yen positions in a risk-on environment.
The pair’s behavior post-ISM release aligned remarkably well with our expectations. After the better-than-expected PMI print, USD/JPY found solid support at the 143.80 level, which coincided with a key trend line that had been in play since late May. The combination of USD strength from the data, Fed Chair Powell’s insistence on a “wait and see” approach to cutting rates, and yen weakness from improving risk sentiment created ideal conditions for bullish positioning.
USD/JPY bottomed at 142.70 just before the ISM release and rallied to 144.50 at the time of writing. Traders who entered long positions near our identified support area likely would have been able to capture a portion of the approximately 70-80 pips of upside.
Not Eligible to move beyond Watchlist – Bearish USD Setups and GBP/USD short strategy
GBP/USD: Bullish USD Event outcome + Risk-Off Scenario
GBP/USD 1-hour Forex Chart by TradingView
While the event outcome favored a further look into a short strategy on GBP/USD, the broad risk environment situation did not as conditions were improving thanks to positive U.S. developments on the session and improving sentiment on trade & interest rate policy.
Still, this would have played out nicely for GBP/USD bears thanks to a surprise event in the U.K. The actual catalyst that spurred a selloff for the pair turned out to be U.K. fiscal concerns in the next day’s London session, which triggered a drop in U.K. gilts and the currency.
With that event and some net positive U.S. developments, it should’ve been no surprise that we saw a sharp tumble for GBP/USD below the 1.3700 handle to the pivot point level near the mid-channel support.
USD/JPY Short: Bearish USD Event outcome + Risk-Off Scenario
USD/JPY 1-hour Forex Chart by TradingView
In this week’s watchlists, USD/JPY had strong arguments for both the bulls and the bears, and the bears in the pair definitely didn’t have a chance after the net positive bounce on Tuesday. That invalided the bearish setup discussed on USD/JPY, shifting to the bull USD/JPY strategy discussed earlier.
AUD/USD Long: Bearish USD Event outcome + Risk-On Scenario
AUD/USD 1-hour Forex Chart by TradingView
AUD/USD was on our watchlist for a potential rally on weak U.S. data and a net positive risk environment scenario. We did get the improving broad risk environment arguments (and possibly a little help for AUD bulls thanks to China’s stimulus), but the stronger ISM print and net positive U.S. updates on the session made this a very low probability setup and invalidated AUD/USD from further work.
This bullish fundamental conflict between both currencies is likely why we saw the pair chop sideways for the rest of the week, but it looks like technical setup discussed in our original post could have yielded a slightly net positive outcome (dependent on trade strategy & execution) as the bulls held at the bottom of the rising channel and rising moving averages.
The Verdict
Our fundamental analysis and watch scenario based on improving risk sentiment and a net positive USD event outcome, triggering more work into a potential USD/JPY long setup.
Our technical analysis nailed the 143.00–143.50 support zone as a potential area of interest for long entries, giving traders a clear setup to work with.
And thanks to a little luck from the surprise net positive U.S. NFP report, USD/JPY moved favorably with what the long USD/JPY strategy anticipated.
Overall, we assess this as highly likely to have delivered a net positive outcome. The alignment of fundamental and technical factors made for a straightforward, high conviction strategy: ISM surprise supported USD upside, technical levels held as expected, and a favorable risk backdrop and rate divergence narrative between the Fed and BOJ reinforced the carry appeal. And based on the follow-up behavior, this trade likely didn’t require any elaborate risk management beyond basic execution.
Key Takeaways:
Currencies Don’t Trade in Isolation
This week was a reminder that currency pairs don’t move on data alone. The stronger ISM report gave the dollar a short-term boost, but bigger forces shaped the market. USD/JPY climbed as risk-on flows hit the yen harder than the dollar. GBP/USD fell hard after a U.K. political catalyst. AUD/USD limited downside moves as China’s stimulus and improved risk appetite outweighed the net positive US events on Tuesday.
Always zoom out. One report rarely drives the whole market. Sentiment and policy expectations often call the bigger shots.
Timing Your Entries Matters
The market’s reaction to the ISM beat played out in stages. We saw an initial dollar spike, followed by pullbacks as Fed rate cut expectations returned, and by week’s end, risk-on sentiment took over. It’s a classic case of why patience matters. The first move isn’t always the final one.
It’s sometimes better to let the noise clear before jumping in. Our USD/JPY setup worked better by waiting for the dust to settle and entering near solid technical support.
When Everything Lines Up, Keep It Simple
Our USD/JPY trade worked because multiple factors aligned: technical support held where expected (143.00-143.80), the fundamental story made sense (U.S. data improving, Japan keeping rates low), and market mood supported the trade (risk-on = sell yen).
When you get this kind of alignment, you don’t need fancy strategies. Simple entries with clear stops often work best, as evidenced by this week’s straightforward move from support to resistance without requiring complex trade management.
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