Chinese Markets Stabilizing – Euro/Dollar Down

EURUSD 1H

Yesterday’s Trading:

Thursday’s close had the euro up against the USD to 1.0939. Support for the euro came from European stats and a crash of stock market indices. Let me remind you that the Chinese stock market on Thursday had trading closed within half an hour of it opening due to the Shanghai Composite falling by more than 7% (fall of 7.04%), thus triggering the circuit breaker rule and market closure. Other indices across the world followed the Chinese, with the Dow Jones down 2.32% to 16,514 and the S&P down by 2.09% to 1,949 points.

Main news of the day (EET):

• 09:00, German balance of trade and industrial production;

• 11:30, UK balance of trade;

• 15:30, US and Canadian labor market reports (US: unemployment, NFP and average hourly wage, Canada: changes in employment and unemployment level);

• 20:00, Baker Hughes data on drilling rigs (important for oil and CAD traders);

• 22:30, CFTC trader report.

Market Expectations:

The Asian stock market situation is improving. The Shanghai Composite index is up by 2.39% to 3,025, the Nikkei 225 is up by 0.3% and the Hang Seng is up by 0.9%. The Chinese state has announced a temporary halt to the circuit breaker, a mechanism that was only introduced at the beginning of this year.

There will be a US labor market report out on Friday. Forecasters expect an increase in job creation by 200k. A Canadian version will accompany the US one, so market volatility will boil over if the figures stray wildly from the forecasts. I made my forecast for up to 15:30 EET.

Technical Analysis:

• Intraday target maximum: n/a, minimum: n/a, close: n/a;

• Intraday volatility for last 10 weeks: 100 points (4 figures).

Even if the Chinese indices are rising now, we still need to trade keeping an eye on China all the way up to the American session. The euro/dollar has corrected from a 1.0939 maximum by 63 points. Taking into account that trader activity before the payrolls is low, I expect to see the euro down to the hourly trend line at 1.0850. I made my forecast for up to 15:30 EET. What the NFP will be like is anyone’s guess.

EURGBP 1H

The euro/pound spent the second half of the day way off the trend above the U3. As soon as the situation on the Chinese stock markets stabilized, the euro/pound corrected to 0.7430. A full covering of the growth at the American session brought about the formation of a head and shoulders pattern. At the very least, its silhouette it hard to miss. The trend line is broken, indicating a fall for the euro in the first half of today. The ideal situation would be a consolidation above the neck line until 15:30 EET.

Daily

The euro/dollar has renewed to the trend line due to a crash of stock markets. The Chinese situation is stabilizing and the euro/dollar has bounced back. We could suppose that the downward correction will continue until 15:30 EET and before the NFP is out.

Weekly

The bulls didn’t manage to fully win back all of their losses. A close of the week above 1.0871 will see a forming of a euro buy signal. All we need to do now is wait for the NFP to be published.