EUR/USD Continuing Downtrend on Back of a Strong NFP Report

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EUR/USD Continuing Downtrend on Back of a Strong NFP Report

The EUR/USD is threatening to continue its prevailing downtrend after a strong Non-Farm Payroll report gave the US Dollar a boost across the board. Let’s first look at the jobs report and then look at the technical development of the EUR/USD before and after.

The Bureau of Labor Stastics reported reported 257K jobs being added in January.This was better than the average forecast around 236K. The December reading was revised up sharply to 329K from 252K. There was further upwards revision for November’s reading to 423K, making the 3-month average around 336K, the strongest since Nov. 1997 according to Bloomberg.

US NFP improving throughout the years:
nfp jan 2015
(click to enlarge; source: forexfactory.com)

The unemployment rate rose slightly to 5.7% from 5.6%, but the silver lining here is the increase in participation rate from 62.7% to 62.9%.

Average hourly earnings gained 0.5% in January, the strongest 1-month growth since Dec. 2006. This is an encouraging signs for Fed-hawks looking to raise rates, but were concerned about lack of wage growth.

The decent January jobs report in a backdrop of strong labor market data over the past 3-months support FOMC’s schedule to raise rates by mid-2015. This should support USD-strength. Let’s see what happened in the EUR/USD.

EUR/USD 4H Chart 2/6
eurusd 4h chart 2/6
(click to enlarge)

We can see that after a low of around 1.11 last Monday, price has been consolidating and drifted to about 1.15 before stalling. Traders essentially respected the bottom area of the previous consolidation ahead of the NFP, keeping the bullish outlook at bay.

The EUR/USD reaction to the NFP was dominated by USD-strength, and the EUR/USD fell below 1.14, and is now pushing against a rising speedline from last week’s 1.11 low. It looks poised to retreat to 1.13, which was yesterday’s low, with risk of breaking lower. A break below 1.13 should expose the 1.11 handle again, with risk of continuing the prevailing downtrend towards the 1.10 handle.

An inability to push below 1.13 however, would keep the consolidation/bullish correction mode alive, and put pressure on 1.15 again to start next week.

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.