EUR/USD Forecast: Fails to wait for the NFP – falls to critical support

Tight trading ranges are typical ahead of the all-important US Non-Farm Payrolls – but EUR/USD traders were unable to hold their fire amid profound German weakness. Factory orders in the euro zone's locomotive dropped by 2.2% month on month in May, and plunged by 8.6% on a yearly basis.

The figures increase the chances of significant monetary stimulus from the European Central Bank. Olli Rehn, a member of the ECB, has said on Thursday that "now is the time to act" – contradicting reports that suggested the bank will wait until September. 

Euro-zone bonds have been falling in anticipation of rate cuts and perhaps a new bond-buying by the Frankfurt-based institution. Moreover, the nomination of Christine Lagarde, Managing Director of the International Monetary Fund, to lead the ECB from November has also enhanced speculation of more accommodative monetary policy. Lagarde has been supporting current ECB President Mario Draghi's efforts.

Before the German data came out, EUR/USD traded in a tight range. American traders enjoyed the Independence Day holiday on Thursday and enjoyed fireworks – leaving markets fast asleep. And now it is time to wake up – US Non-Farm Payrolls are set to shake markets.

Official surveys conducted ahead of the jobs report suggest an increase of 160K positions in June. However, leading indicators have been pointing to the downside. Both the ADP Non-Farm Payrolls and the ISM Non-Manufacturing PMI fell below expectations. Bloomberg's "whisper number" – based on a crowd-sourced survey – points to an increase of only 120K. Average hourly earnings are set to rise by 0.3% month on month and 3.2% on a yearly basis, a tad better than in May. 

The Federal Reserve is watching the publication closely ahead of its rate decision next month. The world's most powerful central bank is set to cut interest rates for the first time since the financial crisis. However, it is unclear if the Fed will only reduce rates once or embark on an easing cycle that may end with four cuts.

See:

• Nonfarm Payrolls preview: 4th of July fireworks?
• US Non-Farm Payrolls Preview: Three is not the charm

EUR/USD is vulnerable ahead of the publication due to the recent downbeat figures. 

See Non-Farm Payrolls Preview: Three scenarios for the EUR/USD reaction

EUR/USD Technical Analysis

EUR/USD is facing critical support at 1.1270, the line that has been keeping it float in the past few days. In addition, it almost perfectly coincides with the 200 Simple Moving Average on the four-hour chart. The Relative Strength Index is also pointing to the downside.

A break below 1.1270 opens the door to weak support at 1.1250 that capped EUR/USD in mid-June. The round number of 1.12 is next down the line. It cushioned the euro's fall twice in June. 1.1180 and 1.1145 are next.

Resistance awaits at 1.1320 which has been a swing high this week. 1.1350 provided support when the pair was trading at higher ground last week and now caps EUR/USD. 1.1390 and 1.1410 are next.