EUR/USD Will Probably Rise Again After The Fed Next Week

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EUR/USD Is Likely To Rise After Fed Hike. Why?

(buy at 1.0720)

• Nonfarm payrolls rose 211k last month, the US Labor Department said on Friday. September and October data was revised to show 35k more jobs than previously reported. The unemployment rate held at 5.0%.

• The USD recovered a bit of ground after upbeat payrolls data bolstered the case for an imminent hike in US interest rates. However, strong USD is still a concern for US policymakers due to its negative influence on exports.

• US trade deficit widened unexpectedly in October as exports fell to a three-year low, suggesting that trade could again weigh on economic growth in the fourth quarter. Trade subtracted 0.22 percentage point from gross domestic product in the third quarter, which expanded at a 2.1% annual rate.

• The trade gap rose to USD 43.9 a sign that the worst of the drag from a stronger dollar was far from over. September's trade deficit was revised up to USD 42.5 billion from the previously reported USD 40.8 billion. 

• Fed funds futures contracts now show that traders see about an 80% chance that the Fed's meeting December 15-16 will end with a decision to lift rates for the first time since 2006. Traders also boosted bets on a second rate hike by March. But we are the opinion that the second rate hike by March will not be signalized in December FOMC statement – this would be a disappointment for investors and may trigger stronger USD sell-off. That is why we are looking to use current USD recovery to get EUR/USD long. We have slightly lowered our bid to 1.0720.

• Markets were also watching ECB President Mario Draghi’s speech on Friday. He said he was confident the measures, which included a small deposit rate cut and an extension of its asset purchase programme, would bring inflation back to the ECB's target. He was quick to add that the bank was ready to ease policy further if needed.

• Comments by ECB rate setters since the decision suggest there was not enough support for bolder action on the ECB's governing council. The head of Germany's Bundesbank, Jens Weidmann, said he had voted against easing, judging that the current low inflation was mainly due to low oil prices. Latvia's central bank governor Ilmars Rimsevics, who declined to say how he voted, said he questioned some of the measures announced on Thursday during the Governing Council. Executive Board member Yves Mersch, on the other hand, stood by Thursday's decision and even left the door open for more stimulus in the future if needed.

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Significant technical analysis levels:

Resistance: 1.0887 (hourly high Dec 7), 1.0956 (high Dec 4), 1.0981

Support: 1.0753 (20-day ema), 1.0741 (10-day ema), 1.0523 (low Dec 3)