EUR/USD: Trading the US Unemployment Claims

US Unemployment Claims is released weekly, and measures the number of people filing for unemployment for the first time. It is considered an important measure of the health and direction of the US economy. A reading which points to more claims than the market forecast is bullish for the euro.

Indicator Background

Analysts closely monitor employment data, and Unemployment Claims provides them the opportunity to track the US employment picture on a weekly basis. The labor market is highly correlated with economic growth, as an increase in employment will result in greater consumer confidence and an increase in consumer spending. In turn, increased consumer spending leads to further growth in the economy.

Unemployment Claims has been unspectacular but steady, and has come in slightly below the market estimate in the two previous releases. Along with other employment data, it has helped bolster the US dollar and raise market confidence that the US recovery is deepening. The estimate for the July release is almost unchanged, with an estimate of 343 thousand claims. If the indicator can again beat the forecast, this would be bullish for the dollar.

Sentiments and levels

ECB head Mario Draghi sent the euro spinning lower yet again, after stating that interest rates would be kept low and sounding pessimistic about growth in the Eurozone. His remarks about maintaining low rates were echoed earlier this week by ECB executive board member Jorg Asmussen, who has a penchant for making comments which hurt the euro. The commitment for these rates or lower for a long time hasn’t been fully played out, and the euro could certainly extend its falls. This move overshadows some signs of improvement from Germany and Spain and the will to keep the debt crisis under control until the German elections in September. The crisis in Portugal and uneasiness over the Greek bailout are also weighing on the euro.

The positive US non-farm payrolls report, and the upwards revisions, strengthen the notion that QE tapering will come in September, unless the US economy nosedives. So, the overall sentiment is bearish on EUR/USD towards this release.

Technical levels, from top to bottom: 1.2940, 1.2890, 1.2840, 1.2750, 1.27 and 1.2660.

5 Scenarios

1. Within expectations: 339K to 347K: In such a case, EUR/USD is likely to rise within range, with a small chance of breaking higher.

2. Above expectations: 348K to 352K: An unexpected higher reading can send the pair above one resistance line.

3. Well above expectations: Above 352K: Weak employment numbers would be bearish for the dollar. Two or more resistance lines could be broken on such an outcome.

4. Below expectations: 334K to 338K: A positive reading could push EUR/USD lower, and one support line could be broken.

5. Well below expectations: Below 334K. A sharp decrease in unemployment claims could lead to the pair breaking two or more support levels.