EUR/USD Climbs to Safety after Positive Unemployment Rate Data

By Fast Brokers – The EUR/USD is rising quickly after basing yesterday in reaction to the surprise decline in Germany’s unemployment change number.  Today’s EU unemployment rate data confirmed the improving employment market in Europe.  The EUR/USD has popped above our 1st and 2nd tier uptrend and 2nd tier downtrend lines, separating itself from the highly psychological 1.40 level.  However, optimism is a bit mixed since the EU CPI flash estimate came in two basis points below analyst expectations.  The EU continues to face deflationary pressures despite declining unemployment and rising consumer confidence.  Therefore, the ECB may need to lower rates again or increase the funding to its alternative liquidity measures since the injection of liquidity doesn’t seem to be having a potent enough impact on prices.  The possibility of an increase in liquidity is creating a drag on the Euro, noted in the subpar performance of the EUR/GBP.  Regardless, the improvement in unemployment and consumer in confidence is key since prices and industrial production should follow later.

Meanwhile, the spread between German and Greek bonds continues to narrow, showing investors are willing to take more risk with their EU investments.  Additionally, we’ve seen mixed yet positive data from the U.S. recently, giving the EUR/USD more motivation to recovery strongly Wednesday’s pullback.  On a cautionary note, Deutsche Bank’s CEO, Josef Ackermann, warned that individual and small business delinquencies may cause another wave of financial turmoil.  However, investors are focusing on the immediate-term once again rather than dire remarks regarding the medium-term.  Global economic fundamentals are improving and immediate-term, concrete data is telling a positive story.

The EUR/USD’s defense of 1.40 has been impressive, yet expected.  The EUR/USD is logging some encouraging volume on the buy-side while the currency pair’s correlations make positive moves.  Despite the recovery in the EUR/USD, the currency pair still has to deal with our 3rd tier downtrend line and previous July highs.  July highs could prove to be problematic since the contraction in CPI and PPI are capping gains in the Euro.  Additionally, the S&P futures are trading just below their highly psychological 1000 mark.  The EUR/USD may need the S&P to tackle 1000 before the currency pair can take down its own July highs.  Since we believe 1000 should prove to be a worthy obstacle, the EUR/USD could continue to slope downwards in a consolidative fashion from daily highs for the near-term.  This analysis seems realistic considering investors may hesitate ahead of the ECB meeting on Wednesday.  The ECB has issued surprise monetary shocks in the past, and an injection of liquidity next week isn’t entirely out of the question considering this week’s pricing data.

Present Price: 1.4195

Resistances: 1.4196, 1.4214, 1.4225, 1.4242, 1.4266

Supports: 1.4176, 1.4165, 1.4154, 1.4136, 1.4117

Psychological: 1.40

Market Commentary provided by Fast Brokers.

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