Will The EURUSD Sustain Its Recent Gains? Key Technical Support Broken Ahead of Non-Farm Payrolls

The euro maintained downside bias on Wednesday, heading for a monthly loss against the U.S dollar amidst rising speculation over divergent monetary policies between the U.S Federal Reserve and the European Central Bank. Both central banks are scheduled to hold their next monetary policy meeting in September, where the Fed is expected to raise rates while the ECB is likely to introduce more stimulus measures.

Today has been a busy day for the Eurozone as a spate of economic data readings were published. Germany reported better than expected employment numbers, with the unemployment rate remaining steady in August at 6.1%, according to data from the German Federal Employment Agency. The result was not only in line with forecasts and but also marked a record low. The Unemployment Change figure also beat expectations by reporting a decline of 7,000, confirming a healthy labor market which is seemingly not affected by Brexit.

A low unemployment rate has helped encourage German spending, boosting retail sales by 1.7% in July compared to June, which is the largest jump since January 2014. However, other parts of the Eurozone  do not seem to be as healthy economically. French consumer spending unexpectedly dropped by 0.2% in July, compared to June as households cut back on cars and home furnishing.

In other data EU data, the European Union’s statistics agency reported that Eurozone-wide consumer prices were 0.2% higher in August than during the same month a year earlier, but fell short of estimates of 0.3% price growth. The growth in the prices of services and manufactured goods could not offset the decline in energy prices. As a result, the measure of core consumer prices – which excludes volatile prices such as those for energy and food – grew by 0.8% in August – from the 0.9% rate of price growth in July.

Meanwhile, upbeat U.S. data is supporting the greenback to trade higher versus most of its peers. An earlier report from the ADP showed that the U.S private-sector added 177,000 jobs in August, virtually in line with estimates of about 180,000, from economists polled by The Wall Street Journal.  Although the ADP data is not always an accurate gauge of the non-farm payrolls due on the first Friday of every month, investors still watch the report closely to get an advance indication on what to expect in the Labor Department’s employment report.

In other data of importance, The Conference Board published the the U.S Consumer Confidence Index for August yesterday. The index reading came in at 101.1 – the highest level since September 2015. In an interview with Bloomberg yesterday, Fed Vice Chairman Stanley Fisher said that the improvements in the labor market should help the economy withstand any headwinds caused by tightening of interest rates. Fisher also stressed that the pace of rate hikes will be based on upcoming economic data. Therefore, this Friday’s NFP is being considered a key factor in helping the market assess the possibility of a rate increase at the Fed’s late-September meeting.


Fig: EURUSD D1 technical chart

EURUSD has been extending the slide since it hit serious resistance at the 23.6% retracement level at 1.13505. The solid support at the 38.2% level was broken easily yesterday after the pair had crossed over the MA20 at 1.12101 from above, indicating a strong bearish bias. RSI (14) is heading downwards from near the overbought zone while ADX (14) has also confirmed the downtrend by rising to as high as 32.16. A wide gap between the –DI and +DI lines is encouraging the pair to attempt a break below the psychological support at 1.11300.

Trade suggestion

Sell Stop at 1.11300, take profit 1.10580, stop loss at 1.11900

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