The ISM services index published on Thursday "broke out of the general pattern," landing in the green zone. All other key macro indicators fell short of forecasts. The manufacturing ISM, JOLTS, and ADP reports moved into the red zone, increasing pressure on the greenback.

August ISM Services was indeed fairly strong. And if not for significant accompanying flaws (which we will discuss below), the release would have favored the greenback. However, as we have repeatedly seen, the devil is in the details. ISM Services, unfortunately, was no exception.

The headline — the services business activity index — rose in August to 55.4 points from 54.1 in July. Most analysts had forecast a more modest rise to 54.3. The indicator has been in expansion territory for 26 consecutive months. The business activity subindex jumped from 59.1 to 61.7 points, while the new orders subindex rose to 60.9 (from 57.2). New orders have now been growing for 15 consecutive months, reaching the highest level since February 2023.

All this indicates that domestic demand in the services sector remains fairly resilient and that the US economy as a whole continues to expand.

But there is another side of the coin. The weakest component of the report was the employment section. The Employment Index subcomponent remained below the key 50-point mark for a second month, coming in at 47.8 in August (47.4 in July). The indicator remains below its 12-month average (48.8). In other words, the services sector continues to cut employment despite a noticeable improvement in business activity and new orders.

The US labor market looks weak even where economic activity remains relatively high.

In this context, ISM Services should be compared with earlier released macro data. For example, the employment component of the manufacturing ISM also fell — from 52.8 to 51.2 points. At the same time, new orders slipped three points (to 53.7), and backlogs fell to 51.8.

The JOLTS report also offered no optimism: vacancies in July were virtually unchanged at 7.27 million, while hires remained at 5.1 million. That is, the labor market is operating in a "low hires — low layoffs" mode. Companies are not rushing to fire employees, but they are less actively expanding payrolls. The ADP only exacerbated this picture: according to the August report, the US private sector added only 38,000 jobs last month (vs. a weak forecast of 47,000). This is the worst result since January.

Thus, three different sources — ISM, JOLTS and ADP — basically conveyed the same message. This is not yet a labor-market collapse, but the dynamics have clearly lost previous momentum. Under these conditions, this factor becomes especially important, since the Federal Reserve now has to balance inflation risks with growing signs of cooling in employment.

In other words, the August ISM Services cannot be called unequivocally "hawkish." Yes, the services economy is indeed accelerating. But growth in business activity is not translating into a corresponding rise in employment. The report, therefore, simultaneously signals strong demand and a weak labor market. That is why sellers of EUR/USD could not interpret Thursday's release in their favor.

Especially since the dollar came under additional pressure following a speech by Fed governor Christopher Waller. Unlike the hawkish rhetoric of Kevin Warsh in Jackson Hole, Waller took a softer stance. He said that if inflation in August continues to slow, he is ready to support a pause at the September meeting. That rhetoric acted like a "cold shower." Recall that at Jackson Hole, the Fed chair stated that absent convincing progress on inflation, the central bank might need to tighten further. After those remarks, the market sharply increased the probability of a September rate hike. On Thursday, one of the Fed's most influential officials effectively returned the alternative scenario — a pause — to the agenda.

Of course, much will depend on the August nonfarm payrolls to be published Friday. If the official US labor report disappoints, Waller's verbal messages will "play in new colors," and the greenback will face additional pressure. Judging by preliminary signals (weak ADP, sluggish hiring in JOLTS and falling employment in ISM Services), that outcome looks quite possible.

From a technical standpoint, the pair is currently testing resistance at 1.1630, which corresponds to the Tenkan-sen line on the D1 timeframe. If this level is breached, the Ichimoku indicator will form a bullish "Parade of Lines" signal. In addition, the price would sit between the middle and upper Bollinger Bands, also signaling a preference for long positions. The nearest target to the north is at 1.1660 (the upper boundary of the Kumo cloud on H4). The main target is 1.1710 (the upper Bollinger Band on the D1 timeframe), although achieving it will depend on the "color" of the August NFP.