EUR/USD looks weak even if it has found some mild support after the publication of the US ADP employment report.
Today’s main event was the publication of the ADP private sector payrolls report. This showed a massive drop of 20.24 million in employed, which was a tad more than expected. However, there was little reaction from the dollar, as the news was already priced in by the prior indications we had, for example, from the weekly jobless claims data.
Earlier, stock indices and US index futures recovered after the selling into the US close last night failed to follow-through. However, it hasn’t been a full-on bullish day yet as investors are continuing to weigh the impact of the economic damage from Covid-19 lockdown against the prospects of re-opening as most major economies edge towards the resumption of some sort of activity.
In FX, the Dollar Index has risen for the third day, with major European currencies - the euro, pound and franc – all going in the opposite direction amid weak macro data here and after the German court ruling over the ECB’s stimulus programme. The Japanese yen has been by the far strongest currency, underscoring my worries over this so-called “risk-on” trade. Despite this, gold and oil were both lower, providing mixed signals about risk-appetite.
If risk appetite does turn sour, we could see the dollar extend its recovery on haven demand against European currencies and commodity dollars. The EUR/USD could be hi the hardest because of growing concerns about the health of the eurozone, with the European Commission this morning suggesting the block could be in for a record 7.7% contraction this year.
Indeed, the EUR/USD has been drifting lower so far this week and all it needs now is a little push to move it below its old lows around 1.0725:
At the time of writing, price was testing potential resistance around 1.0810-1.0850 area. Previously this was a support range, so it is likely we could see the bears apply some pressure within this zone. However, if we go back above this area and the bearish trend line, then in that case, we will have to drop our short-term bearish bias on this pair.