With the EUR/USD dipping to a low so far of around 1.1825ish, it remains to be seen whether the selling pressure will accelerate or subside in the coming days, with plenty of macro pointers to digest – not least the official US payrolls data on Friday.
The dollar extended its short-covering rebound today following a decent recovery on Tuesday from severely oversold levels. Today, the focus was on the EUR/USD exchange rate, which briefly rose above $1.20 for the first time in more than two years on Tuesday, before selling off. As well as technical selling around this level, investors evidently reacted to comments made by the ECB’s Philip Lane, who said that “the euro-dollar rate does matter,” implying the central bank was getting worried about the appreciation in the exchange rate. With the EUR/USD dipping to a low so far of around 1.1825ish, it remains to be seen whether the selling pressure will accelerate or subside in the coming days, with plenty of macro pointers to digest – not least the official US payrolls data on Friday.
But in so far as today’s key data releases were concerned, well they disappointed from both sides of the Atlantic:
- From the US, the latest ADP private sector employment report revealed that 428K non-farm jobs were added in the economy last month, which was much weaker than 1250K expected. Despite the big disappointment, the US dollar extended its gains while index futures retreated moderately from record highs. The ADP report often provides a good indication for the official jobs data that will be published on Friday. But judging by today’s indication, the official nonfarm payrolls report could disappoint expectations on Friday. However, expectations will be adjusting accordingly, as we will have a couple of more employment indicators on Thursday to provide us with clues. Earlier in the week, the employment component of the ISM manufacturing PMI showed improvement from the previous month, which is a positive sign.
- From the Eurozone, we had weaker-than-expected German retail sales and Spanish jobs data, which helped to pule pressure on the single currency. German retail sales fell 0.9% m/m vs. +0.5% expected, while Spanish unemployment rose by 29.8K when 10.1K was expected.
EUR/USD down but uptrend still intact
While the EUR/USD may be down and dollar up today, it is far too early however to suggest the greenback’s dominant downtrend is over. We certainly need to see some big improvements in upcoming US data releases to convince investors that inflation will rise and reduce the need for further monetary stimulus. A solid official jobs report on Friday may very well help with the dollar’s recovery, but this alone will probably not be enough to change the tide completely – not when you have consistent dovish commentary coming out of the Fed, for example from Lael Brainard.
Still, we can’t ignore the technical damage that has happened on the daily chart of the EUR/USD:
Source: TradingView.com and ThinkMarkets
The inverted hammer at the key 1.20 handle may be an early sign of a top – who knows? We need further confirmation to suggest a top is in, though, otherwise it is a case of “innocent until proven guilty,” meaning the uptrend is still intact. The bears need to see a confirmed break below the recent lows around the 1.17 handle to objectively tell us that the uptrend has ended. If this happens, we will have had out first lower low. But at this stage, I am not ruling anything out – including a rally above 1.20 in the coming days. In fact, given the bullish trend for the dollar, I am leaning more towards a rebound to 1.19 resistance than a continuation of the sell-off from here.
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