EUR/USD Buckles Following Weak U.S. Employment Data

By Fast Brokers – Today’s rally in the EUR/USD has hit a roadblock after America’s ADP Non-Farm Employment Change number came in well below analyst expectations.  Today’s release couples with yesterday’s disappointing CB Consumer Confidence release.  Therefore, the U.S. continues to send negatively mixed signals, hampering the global economic outlook.  In contrast to weak U.S. data, Germany’s Unemployment Change number came in below analyst expectations, reading negative for the third straight month.  Hence, Germany’s employment market is firming up more quickly than America’s.  However, last week’s wave of negative EU PMI data from Germany dampens our future outlook for German unemployment.  Regardless of the future outlook, today’s positive employment data from Germany is helping weather negative U.S. data, limiting present selling pressure.  Unfortunately for bulls, we’re not sure how lasting this strength will last.

ECB President Trichet voiced his preference for a stronger Dollar earlier this week.  Trichet’s statement is juxtaposed to the ECB’s comparatively hawkish monetary stance throughout the year.  Hence, it seems both the EU and Britain may now favor a stronger Dollar.  We believe both central banks are realizing that if they don’t support the Dollar, a new monetary union will take shape with the East pulling power from the West.  However, it remains to be seen whether Trichet’s public contemplation will result in concrete action.  Trichet’s surprising support of the Dollar is undoubtedly creating a drag on the EUR/USD right now which could accelerate should U.S. equities experience a selloff.

Meanwhile, the EUR/USD still faces several downtrend lines with limited EU economic data on tap this week.  Therefore, there seems to be little ammo to turn the tide and continued near-term weakness could be in order.  The EUR/USD’s dip below our 1st tier uptrend line was a risky move since it runs through 9/8 levels.  Although the currency pair climbed back above our 1st tier, a more definitive retracement could send the currency pair tumbling below the psychological 1.45 level.  Hence, investors should keep a close eye on the EUR/USD’s interaction with our 1st tier uptrend line.  Since EU econ data will be light, the EUR/USD’s near-term performance will likely rely on the S&P’s ability to stay above our 1st tier uptrend line (see S&P commentary) and the 1050 level.  Continual strength in the S&P would likely help keep the EUR/USD’s head above water and 1.45.  However, our outlook on the EUR/USD is becoming increasingly negative by the day.  As for the topside, the EUR/USD faces multiple downtrend lines, 9/28 highs, and 9/17 highs.  Our 3rd tier downtrend line is the key barometer for the EUR/USD’s uptrend since it runs through September 23rd highs.

Present Price: 1.4618

Resistances: 1.4634, 1.4656, 1.4677, 1.4703, 1.4724

Supports: 1.4608, 1.4580, 1.4563, 1.4541, 1.4519, 1.4501

Psychological: 1.45

Market Commentary provided by Fast Brokers.

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