EUR/USD: Is 1.0700 Low Enough For Draghi?

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EUR/USD: Is 1.0700 Low Enough For Draghi?

(waiting for today’s close to place a bid)

• Nonfarm payrolls increased 271k last month, the largest rise since December 2014, vs. market forecast of 180k. Payrolls data for August and September were revised to show 12k more jobs created than previously reported.

• In addition, average hourly earnings increased 9 cents last month. The unemployment rate fell to 5.0%, the lowest level since April 2008, from 5.1% the prior month. The jobless rate is now at a level many Fed officials see as consistent with full employment. 

• Chicago Federal Reserve Bank President Charles Evans (probably the most dovish FOMC member) said that the latest US nonfarm payrolls numbers are very good and that he will keep an open mind on a possible rate hike at the Fed's next meeting in December.

• After today’s data a hike in December is a done deal. The EUR/USD broke below strong support of 1.0800 and will probably continue to fall today. The nearest support levels are 1.0666 low on April 23, 1.0660 low on April 21 and 1.0624 low on April 16. The 1.0457 2015 base for March looks more and more viable as a bear target now.

• The Fed needs to communicate now that rate hike path will be gradual to stop the USD appreciation that may hurt the economy. 

• On the other hand ECB’s Draghi is playing currency wars. Weaker EUR was the target of his dovish statement on October 22, when he goaded markets into pricing in easing expectations for December 3. On the other hand, several ECB board members that were all quoted well after the October 22 ECB saying they do not think any extensions to ECB QE or further negative rates are needed.

• Will a fall in the EUR/USD from 1.1495 in mid-October to near 1.0700 now be enough for Draghi? Will he manage to convince other ECB policymakers that QE expansion in December is really needed? We doubt it. 

• We have expected since long that the Fed is ready to raise rates in December, but now we anticipate a relatively dovish rhetoric from the Fed just to stop the USD rally - as dovish as possible before a rate hike. On the other hand, the ECB’s QE expansion is under question. 

• We will wait for today’s EUR/USD close and will be looking to buy the EUR/USD in the coming sessions, as a recovery in this pair is technically and fundamentally justified now.