EUR USD dives after non farm payrolls and rate hike implications

The non-farm payrolls and unemployment data reports were released by the US Labor Department on Friday morning. 215,000 jobs were added in July, slightly missing consensus estimates of 222,000. The unemployment rate remained steady at 5.3%, in-line with expectations. Average hourly earnings remained at 0.2%, also in-line with expectations.

While the actual payrolls number fell short of consensus estimates, the employment data may be considered solid enough to imply a potential Fed rate hike in September. This implication prompted a rapid surge in the US dollar shortly after the data release and a resulting drop in the EUR/USD.

This drop brings the currency pair closer to its downside support target around the 1.0800 level. For the past two months, EUR/USD has been trading in a clear downtrend within the larger context of a long-term bearish trend that has been in place for more than a year. The short-term trend has displayed a classic case of lower highs and lower lows descending from mid-June’s high around the 1.1400 resistance area.

The last major high within this downtrend was in late July around the 1.1100 resistance level, which was also around the key 50-day moving average.

Both technically and fundamentally, EUR/USD should be due for a new lower low below the noted 1.0800 support level, especially in light of an impending Fed rate hike and today’s employment data that helped provide some further rationale for a sooner rate hike.

In the event of a breakdown towards this lower low under 1.0800, the next major downside target is around the 1.0500 level, which is the area of March’s twelve-year low and the site of a rough double-bottoming pattern in March and April. A further break below 1.0500, which would confirm a continuation of the long-term downtrend, could pressure EUR/USD towards further downside support around the 1.0200 level.

To the upside, major resistance on any rebound remains around the noted 1.1100 price level.