EUR/USD Midweek Report: Increase in Bearish Pressure
EUR/USD has fallen following the release of a stellar jobs report from ADP – the largest payroll processing company in the US - which saw 298k jobs added to the economy in February, when analysts had only expected 190k.
The Euro to Dollar pair fell after the release as the Dollar strengthened, and EUR/USD slid to 1.0536 from 1.0556 before.
The increase in employment solidified market expectations the Federal Reserve will raise interest rates at their March 15 meeting next week.
Prior to the release of the report, the chances of a rate rise stood at 81.9%, whilst after, they had risen to 90.3%, according to Fed Funds Futures.
The surge in jobs bodes well for the economy, growth, and inflation, which makes it more likely the Fed will need to keep raising rates.
This is important for the Dollar because it tends to move in tandem with interest rates, due to foreign investor’s preference for placing their capital in jurisdictions which offer a higher return.
Although there is no statistically significant link between ADP stats and Non-Farm Payrolls which are released on the Friday after, even taken on its own is a positive economic indicator.
It will need to be backed up by a strong NFP reading on Friday, however, for the Dollar to sustain its gains.
Technical Forecast
Our market technicians have admitted to being slightly baffled at EUR/USD’s lack of upside until today’s labour stats were released.
The pair languished in the 1.0550s for most of the morning until the jobs data led to a 20 point decline down to 1.0536.
This went against the grain from a purely technical perspective.
The pair had been showing some important bullish signals which made us think it was going higher.
Of course, there is still a chance this might happen and the current pull-back might be just a delay.
So, we are not changing our bullish forecast.
The tweezer bottom pattern on the weekly chart is still a powerful indicator of more upside to follow, even if it has not happened yet.
As long as the tweezer lows at 1.0492 hold, we are bullish for the pair.
On the daily chart, we had a ‘one step forward, two steps back’ setup which says that there is a 66% today (Wednesday) should end as an up-day.
We also note that the pair has pulled back to the trend-line in a ‘return’ move which often happens just after a break when the exchange rate falls back to ‘air-kiss’ the trendline goodbye.
Although the move down has meant the exchange rate has pierced back below the trendline temporarily, we will not know until the end of the day whether the break has held or been repelled.
The next target is likely to be either the 50-day MA at 1.0622 or the monthly pivot situated at 1.064.
At those levels, bear’s may seek to fade the trend.
