Euro/Dollar: Situation Contradictory

EURUSD 1H

Yesterday’s Trading:

The euro/dollar closed slightly down on Friday. Moreover, after the publication of strong NFP data, a long shade appeared on the daily candle. The key currencies were showing mixed movements by the end of the trading session. Whilst one strengthened against the dollar, another weakened, Now I will explain why this happened.

The Non-Farm Payrolls came out better than expected. Job creation in the US non-agricultural sector during December was up by 292k (forecasted: 195k). November’s figure was reassessed up from 211k to 240k, as was October’s from 298k to 307k. The total reassessment was a +50k extra jobs. This is the sort of data the Fed has been hoping for.

US unemployment in December remained at 5.0%, with the index for average hourly wages at 0.0% (forecasted: 0.2%, previous: 0.2%). This indicator was disappointing, but with a 292k NFP, it’s not something to worry about. There was also an increase in the amount of the population becoming part of the work force: a rise by 0.1% to 62.6%.

The euro reacted by falling 63 points to 1.0802. From here the price turned round and headed back up to 1.0929. The NFP is having a short-term effect on the market. The main thing here is to know exactly when to exit the market. By the end of the day, the euro had strengthened against the US dollar due to a fall of European and American stock market indices, in addition to worries of Chinese stock markets opening Monday down.

And that is exactly what happened: the indices opened with a fall. The Shanghai Composite closed down by 2.40% at 3,109 and the Hang Seng fell by 2.45% to 19,952.63. And so because of this, the euro bulls managed to shift the maximum to 1.0969.

Main news of the day (EET):

• 15:15, Canadian new foundations lain for December;

• 19:40, FOMC member Lockhart to speak.

Market Expectations:

The situation for the euro is contradictory. The weekly candle for last week and the break in the trend line on the daily indicate a strengthening of the euro against the dollar, whereas the weekly stochastic for the euro/pound cross on the hourly is indicating a fall.

If the euro/dollar closes down on Monday, a pinbar will form on the daily graph. This means that a stable Chinese stock market situation will see the euro return to 1.0850. After the Payrolls, I always expect to see a movement against that of Friday. My choice is for a fall of the rate to the 67th degree at 1.0890.

Technical Analysis:

• Intraday target maximum: 1.0969 (current Asian), minimum: 1.0890, close: 1.0915 and if the American stock indices don’t fall: lower than 1.0900;

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

Due to a fall in the Chinese stock markets the euro has updated its maximum. The price has bounced from the U3 line and the 135th degree. At 6:48 EET, the euro/dollar was trading 1.0913 against a session minimum of 1.0907. Since the stochastic has switched into a buy zone, we could see a growth in Europe to 1.0940. From here I expect to see a return to 1.0890. The calendar is bare, so the main drivers for the currency market will be movements on the stock markets.

EURGBP 1H

The euro/pound again headed off-piste. The price is now already back on the track (between U3 and D3). As on 8th January, a retreat to the LB is expected. A fall in the euro cross rate will find the currency under pressure, with the pound receiving support. In my forecast I have shown what we can expect from the pair.

Daily

As I said in the first tab, the situation is contradictory. The trend line has been broken. A long low shade has appeared on Friday’s candle. Since today is Monday, it’s a bit early to say how reliable these signals are. It would be enough for the euro to close down as a pinbar is forming indicating a fall in the euro and a false break.

Weekly

The bulls managed to close the week well. If the euro closes above 1.0900 on Monday, I reckon we’ll see a growth to 1.1085.