The Euro Bounces After Soft Report (FOREX Trading)

Although this blog is primarily focused on swing trading stocks and ETFs, it has become apparent that an increasing number of visitors also trade FOREX as well. As such, today we have a guest post for FOREX traders (and for traders of currency ETFs as well).

If you have no interest in FOREX or currency ETFs, just skip along to the next post. You won’t hurt our feelings. Otherwise, enjoy this post contributed by FinancialTrading.com, an online guide to derivatives trading…

What’s Happening Economically?

The Euro rebounded last Friday (September 6), on the heels of the US’s non-farm payrolls report that came out in line with expectations. The number was somewhat disappointing, driving down US yields, and buoying the stock market.

Investors sold the greenback against most major currencies, as the potential for an asset purchase tapering when the FOMC meets in two weeks was diminished slightly.

News that the US nonfarm payrolls increased by 169,000, and that revisions to July and June declined by 74,000, has market participants thinking twice about a Fed tapering after the September meeting.

The dollar has come off and the US Treasury yields declined by nearly 12 basis points in the 10-year space, which buoyed bond prices globally. The unemployment rate slipped to 7.3%, which was more of a function in the decline in the participation rate to 63.2% from 63.4% (the lowest in the last 35 years).

Average hourly earnings rose more than expected, at 2.2%, which helped lessen the blow of a worse than expected headline number and the July number was revised to 2.0% from 1.9%; average weekly hours increased to 34.5 from 34.4; and manufacturing added 14,000 workers after a revised 16,000 loss in July.

Gains in the private sector where 152K, which was in line with expectations. Job losses continued in the government space, with a revision by negative 25K for June and July.

The number was somewhat of a surprise to market participants, given the strong results seen in the labor force over the past couple of days.

Jobless claims, which are a weekly guide to employment, declined for the week ending August 30, by 9K down to 322K which is the lowest print of 2013.

The 4-week moving average also ticked lower, and is now the lowest since the beginning of the great recession.

Additionally, the employment component of the ISM services report showed blowout gains, which raised confidence with investors who were looking for a non-farm payroll number above 200k.

Let’s Get Technical

Here’s a look at the recent price action of the EUR/USD currency pair:

As can be seen on the chart above, the Euro moved through support levels on September 5, but rebounded on September 6 to retest the breakdown level.

Resistance is now seen near 1.3187, as can be seen on this chart from Alpari. A close above this level would lead to a test of the 10-day moving average near 1.3238.

Momentum on the currency pair remains negative, with the MACD (moving average convergence divergence) index printing in negative territory. The trajectory of the MACD is flattening, reducing the likelihood of lower prices.

The relative strength index (RSI) is printing near 39, which is on the lower end of the neutral range, but well above the oversold trigger level of 30.