The US Non-Farm Payrolls wasted no time bringing the greenback down on Friday. The EUR/USD pair, which seemed very steady around the 1.2800 level before the report, promptly jumped due to the better-than-expected figures, and is currently trading around the 1.2900 level. Can the pair cross the 1.30 level this week?
Economic News
USD – Non-Farm Payrolls Report Further Weakens the Dollar
The U.S dollar fell against most of the major currencies during last week’s trading session. The dollar dropped over 200 pips vs. the euro, and the EUR/USD pair is now trading around the 1.2900 level; the dollar fell against the Japanese yen as well.
The catalyst for the dollar’s depreciation was the positive economic data released last week. The dollar’s fall began on Tuesday, as a report showed that consumer confidence in the U.S. increased more than economists had forecast in August. The survey shot up to 53.5 from a five-month low of 51 in July. This has begun easing concerns that the economy might face yet another slowdown. As the week progressed additional positive economic reports were published; the Institute for Supply Management’s gauge of manufacturing unexpectedly rose to 56.3 in August from 55.5 a month earlier, beating expectations for 53.2, showing that U.S. manufacturing expanded at a faster pace than expected.
The dollar’s bearish trend was highly enhanced on Friday, as the Non-Farm Payrolls report showed that the payrolls in the U.S. have decreased in August by merely 54,000, well above expectations for a decline of over 100,000 jobs. While this is still a negative result, it points out that the employment situation may finally be stabilizing. The positive data has boosted demand for riskier assets, and thus weakened the dollar and strengthened the euro.
Looking ahead to this week, many interesting economic publications are expected from the U.S, such as the Trade Balance figure and Unemployment Claims. Traders should take under consideration that if data continues to provide positive results, this will probably boost risk appetite in the market, causing the dollar to weaken.
EUR – Euro Rises Despite Disappointing Data
The euro rallied against most of its major counterparts during last week’s trading. The currency gained over 200 pips against the U.S. dollar and about 150 pips vs. the British pound, and the EUR/GBP cross is now trading near the 0.8350 level.
The euro rose against most of the major currencies despite rather disappointing data released from the major economies in the euro-zone. The European unemployment rate remained at a 12-year high of 10.0% in July as companies continued to cut costs to help shore up earnings. In addition, retail sales in Germany, Europe’s largest economy, unexpectedly fell for a second month in July. The report showed that sales dropped by 0.3% in July, failing to reach expectations for a 0.6% rise.
However, the negative data failed to impact the euro’s trading. It appears that investors have placed much greater significance on the positive data from the U.S, especially the better than expected Non-Farm Payrolls. The positive data from the U.S. economy has led investors to believe that global economic recovery is well on its way, and as a result turned them to open long positions on the euro and the pound, despite the unsatisfying data from the euro-zone.
As for this week, a batch of data is expected from the euro-zone. Traders are advised to pay attention to the publications from the leading economies, such as Germany and France. If the news provides positive economic reports, the euro might strengthen further.
JPY – Yen Closes a Bullish Week with Bearish Signals
The Japanese yen strengthened against most of the major currencies during the beginning of last week’s trading session. The yen gained about 150 pips against the U.S. dollar and about 300 pips against the British pound. However, by midweek the yen corrected most of its gains, especially against the euro and the pound
The yen began last week with a bullish trend following positive data from the Japanese economy. The Preliminary Industrial Production report unexpectedly rose by 0.3% on July, beating expectations for a 0.3% drop, and rising for the first time in 3 months. In addition, Japanese retails sales rose by 3.9% in July, beating analysts’ forecast of a 3.6% rise.
However, the bullish trend reversed by midweek following positive economic reports from the U.S. A number of publications have shown that the U.S. economy will probably evade another slowdown, as several economic indicators have shown better-than-expected results. This has boosted optimism in the global economic recovery and as a result increased demand for higher yielding assets, such as the euro and pound.
As for the week ahead, the most significant publication from the Japanese economy looks to be the Overnight Call Rate. The Over Night Call Rate is in fact the Japanese interest rates announcement for September. Analysts expect that the Bank of Japan (BoJ) will leave rates at 0.10%, the lowest in the industrial world. However, if the BoJ will unexpectedly decide to hike rates, heavy volatility is likely to take place.
Crude Oil – Crude Oil Closes a Volatile Week near $74.50 A Barrel
Crude oil saw an extremely volatile session during last week’s trading. Crude began last week with a sharp fall to $71.50 a barrel. However by Tuesday crude saw a trend reversal that brought it up to $75.40 a barrel.
Crude oil fell during the beginning of last week due to concerns that the U.S. economy, the world’s largest oil consumer, might face another slowdown. However, as the week progressed, several positive reports were published from the U.S. economy, easing investor’s concerns. The reports showed that the American people have more confidence in their secure financial outlook, and that the manufacturing activity has expended at a faster pace than expected in August. In addition, the Non-Farm Payrolls report showed that the employment situation in the U.S. may finally begin to stabilize. This in turn created speculation that energy demand could rise, and as a result boosted crude oil prices.
As for the week ahead, traders are advised to follow the major publications from the U.S. and the euro-zone, as they tend to have the largest impact on crude oil trading. Traders are also advised to follow the U.S. Crude Oil Inventories figure, which is scheduled to be released on Thursday, as this report usually has an instant impact on crude oil.
Technical News
EUR/USD
Most technical indicators are showing this pair trading well in overbought territory, which typically means that a downward correction could take place in the near future. The Williams Percent Range on the daily chart is currently at the -5 mark. Anything above -20 is considered to be overbought. The Stochastic Slow on the 8-hour chart shows a cross forming above the upper resistance line, indicating that downward pressure could come soon. Traders are advised to go short with tight stops today.
GBP/USD
The Relative Strength Index on the 8-hour chart shows the pair approaching overbought territory. That being said, most other indicators are showing the pair in neutral territory. Traders may want to take a wait and see approach today to better determine a clear direction for this pair.
USD/JPY
After tumbling in last week’s trading session, it appears that the pair is finally in stable territory. Most technical are not showing a clear direction for this pair at the moment. The one exception is the MACD on the 8-hour chart, which is indicating a bullish correction could occur. Traders will want to watch out for any upward movement for this pair.
USD/CHF
The Williams Percent Range on the daily chart is showing the pair trading on the border of oversold territory, indicating an upward correction could occur today. The Relative Strength Index on the 8-hour chart is showing the pair close to being oversold. Traders are advised to go long in their positions today.
The Wild Card
AUD/USD
The Relative Strength Index on the daily chart is showing the pair trading well in overbought territory, indicating a downward correction could occur in the near future. This theory is supported by the Williams Percent Range, also on the daily chart, which is currently at the -5 mark. Forex traders may want to go short with tight stops in their positions today, as a downward correction will likely take place.
Written by Forexyard.com