EUR/USD steady ahead of NFP

<p>Now today’s focus is on the US jobs report which should cause noticeable volatility in the markets, especially if the numbers deviate from expectations by […]</p>

Now today’s focus is on the US jobs report which should cause noticeable volatility in the markets, especially if the numbers deviate from expectations by a sizeable margin. It would take a really bad report – and I am talking about net job losses – to deter the Fed from hiking rates at its meeting later this month. Anything other than that may not cause the dollar to weaken significantly, although there is a possibility that it will close the day lower anyway because a rate hike is basically priced it. I think the market is waiting to see what the Fed is thinking about in terms of the future path of interest rates. How many, if any, rate rises will there be in the first half of 2017, for example.

Apart from the dollar and the Fed, the focus next week will be on three other central banks: RBA, BOC and ECB. Speculation that the ECB is thinking about tapering QE early and/or not extending it beyond its intended March 2017 end date has supported the euro and undermined European equities recently. Mario Draghi, the ECB president, may shed some light into this at his press conference on Thursday. So until then, the EUR/USD may be able to hold its own above that critical 1.05 support, regardless of how strong or otherwise the NFP will be today. That is our base case scenario now. If so, the fibre could break above last week’s high of 1.0660 decisively before rallying towards 1.0850/80, the last swing low prior to the breakdown.

The alternative scenario is that the EUR/USD will break decisively below the critical 1.0460-1.0525 area at the second time of asking. If this were to happen then the EUR/USD could start its next leg lower towards 1.02, and eventually parity. Will it happen today? Who knows, but we would probably need to see a very strong set of numbers in the jobs report. But the most likely trigger for a potential breakdown will probably be the ECB next week or the Fed the week after.


Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.