Weekly Analysis: U.S. Non-Farm Payrolls – Recovery Catalyst or Another Blow to a Weak US Dollar?
Weekly Analysis: Despite being overbought, the Euro pushed higher last week and broke 1.1713, which was a level last reached in August 2015. The Fed maintained a target rate of <1.25% and the Rate Statement was perceived as dovish, so the US Dollar remained on the defensive.
Last week we saw a perfect re-test from above of the level at 1.1616 (highest price reached in 2016) and also a bullish break of 1.1713 (highest price reached since August 2015). Now 1.1616 is confirmed support and will play an important role in future price action. The pair is in a strong uptrend but the Relative Strength Index and the Stochastic are both overbought on a Daily and even on a Weekly chart, thus warning that retracements may soon follow. To the upside the next notable level is 1.1875 (last reached in 2010) followed by 1.2040 (last reached in 2012) but we don’t expect any of them to be touched this week unless surprising events take place.
The week starts pretty strong, with the release of the European Flash Estimate CPI and the U.S. Chicago area PMI, both scheduled Monday. Tuesday the main focus will be the U.S. Manufacturing PMI, a survey of purchasing managers from the manufacturing sector that acts as a leading indicator of economic health.
Wednesday we take a first look at the American jobs situation with the release of the ADP Non-Farm Employment Change, which is a report that tracks changes in the number of employed people in the U.S., excluding the farming sector and Government.
The last event of the week will probably be the most important as well: the U.S. Non-Farm Employment Change, scheduled Friday. Unlike the ADP version, this one is released by the Government and has a bigger impact, being considered the most important gauge of employment in the United States.
The pair continued higher for most of last week, after completing a retracement that found support at 1.2930. Most of the climb was due to US Dollar weakness seen across the board.
The resistance at 1.3050 rejected rising price several times in the past but now the pair has moved above it for the second time in a short period, so this second break will probably generate additional movement to the north. If 1.3160 resistance is broken, we expect to see a move into 1.3250 but this week both currencies will be affected by major releases and events, so the technical side will be secondary.
The week starts with the British Manufacturing PMI, scheduled Tuesday, followed Wednesday by the Construction PMI and Thursday by the Services PMI. All three are derived from the opinions of purchasing managers and act as leading indicators of optimism and economic health.
Also Thursday, the Bank of England will release their Inflation Report (containing inflation projections for the next 2 years) and will announce the Interest Rate at the same time. Later, BOE Governor Mark Carney will hold a press conference, discussing the Inflation Report and this cluster of events will most likely trigger huge volatility, so caution is recommended.
Written by: Bogdan Giulvezan
The article above is based on the writer’s 7-year experience and it does not constitute trading advice or investment recommendations, just a personal opinion and view of the market.