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The ISM Non-Manufacturing PMI for December dropped to 53 points, below predictions. It was expected to rise from 53.9 to 54.6 points. The non-manufacturing sector (services) is the largest in the US. The employment component provides an important hint for the Non-Farm Payrolls report on Friday. While the headline figure disappointed, the employment component rose from 52.5 to 55.8, and this raises expectations for the NFP.

Before the publication, EUR/USD traded above the lows, reconquering 1.36. GBP/USD recaptured 1.64 and USD/JPY was steady at 104.70. This was a “risk on” behavior. — updates coming. The US dollar is weaker now: EUR/USD is trading around 1.3630, GBP/USD at 1.6420 and USD/JPY at 104.60.

The big drag in the report is the level of new orders: it fell sharply from 56.4 to 49.4 points. The 50 point level separates growth from contraction. It is the first negative number in 4.5 years.

While the headline and the important new orders figures are weak, the employment component certainly provide hope for the NFP. Therefore the sell off of the dollar will probably be limited.

Factory orders rose by 1.8% in November exactly as expected. October was revised up from 0.9% to 0.5%.

Friday’s manufacturing PMI shows very solid growth in that sector. Another big hint is the ADP NFP scheduled for Wednesday.

Earlier, Markit’s final services PMI was revised down from 56 to 55.7 points. Nevertheless, this still implies strong growth. The employment component stands at 55.2 points, lower than 55.7 in the initial flash version, but still significantly higher than 52.4 seen in November.

Forex Analysis: EUR/USD Begins 2014 in Defensive Mode