Filed Under:
Forex pairs in this Article » EUR/USD (Barcelona) - After trading as high as 1.3284 ahead of the US Non Farm Payroll data, the EUR/USD was unable to hold onto early gains and ended the session 68 pips lower 1.3216. The lack of follow through after the sharp gains early in the week is somewhat concerning, but thus far the pair has been able to hold onto the critical support level located in the 1.3200 area.

Some analysts are pointing towards a combination between the Non Farm Payroll data, as well as comments from ECB President Draghi at the most recent ECB meeting as reasons to expect limited upside for the EUR/USD in coming days. According to Marc Chandler, Head of Currency Strategy at BBH, “We warned that although the technical factors looked constructive for the dollar, the fundamentals, in the form of the ECB not delivering on the negative deposit rate (that Draghi said he had an open mind about) and additional aid for small and medium size businesses, were less supportive.”

Although he believes the jobs number was not strong enough to warrant any QE tapering in the near future, Chandler noted downside potential in the USD is limited at current levels. “We anticipated that the jobs data would not support notions from some Fed officials (and market participants) that tapering of the purchases of long-term assets could being as early as this month. Now we suspect the dollar's down move has been largely exhausted and we anticipate a recovery in the dollar into a new trading range,” Chandler concluded.

After reviewing the in depth details of the jobs report, some analysts were noting the data basically came in exactly as expected. James Knightly, Senior Economist at ING commented, “the US jobs report shows payrolls rising 175,000 in May while there were a net 12,000 downward revisions to the history. The consensus forecast of 163,000 was pretty much spot on.” Knightley went on to discuss the uptick in the unemployment rate, commenting it wasn’t something to be overly concerned about at the moment. “The unemployment rate has edged up to 7.6% from 7.5%, but this reflects a large increase in the size of the workforce rather than any acceleration in job losses. Indeed, the size of the workforce increased 420,000 in May with 319,000 of these people able to find work,” Knightly concluded

Knightley is of the opinion QE tapering is not a major risk at the moment, but there are factors which make it possible by the end of the year. “We see the risk being that QE tapering comes later rather than sooner. The current consensus according to Bloomberg is that the October FOMC will be the point QE starts to be slowed. We think December looks more likely at this stage,” Knightley concluded.

Val Bednarik of was discussing developments on the shorter term time frame charts which she believes still favor weakness at the moment. “The 4 hours chart indicators head south coming from overbought readings and suggesting further downside yet to come,” Bednarik commented. Bednarik then went on to discuss a few levels the pair would need to surpass in order to see further upside. “Sole stability above 1.3240 could deny the bearish tone, but a clear break above 1.3300 is now required to deny the negative tone, and see further advances in EUR,” Bednarik concluded.

From a longer term technical perspective, the bullish developments which formed last week are still present, but the bulls need to show additional follow through in order to keep the set up intact. Short term moving averages are remain in bullish set up, with price continuing to maintain ground above both the 9 and 20 dma’s. Additionally, the RSI (14) completed a bull shift last week, establishing ground above 60 on the daily chart for the first time since early February. On a final note, the ADX (7) trend indicator remains sharply upward sloping with a value of 44.94, indicating trend strength is still in the process of being formed.
comments powered by Disqus
Trading Center