On Friday the 1st of September, trading on the euro/dollar pair closed slightly up. Volatility increased after the US jobs report was published. 156,000 new jobs were added in the US outside the agricultural sector in August against a forecast of 180,000. The value for June was revised from 231,000 to 210,000 and for July from 209,000 to 189,000. The aggregate revision for the 2 months amounts to -41,000.
The workforce participation rate remained unchanged at 62.9%. Unemployment rose from 4.3% to 4.4% (forecast: 4.3%). The average hourly earnings index in the US fell from 0.3% to 0.1% (forecast: 0.2%).
This news brought a 70-pip surge for the euro, taking it to 1.1980, although it quickly erased all its gains. The NFP report was weak; I have no doubt about this. The price returned to 1.1890 in response to a Bloomberg article, in which it suggested that the ECB might not make a final decision on next year’s QE program by the end of this year.
Then, negative sentiment on the dollar further subsided due to a strong manufacturing PMI as well as growth in US bond yields. The manufacturing PMI from Markit grew to 58.8, while US 10Y bond yields grew to 2.1744. The euro ended up sliding to 1.1850.
Day’s news (GMT 3):
- 11:30 Eurozone: Sentix investor confidence (Sep).
- 11:30 UK: PMI construction (Aug).
- 12:00 Eurozone: PPI (Jul).
EURUSD rate on the hourly. Source: TradingView
On Monday the 4th of September, trading has opened up on the euro and other currencies. North Korea conducted their 6th nuclear test. The power of the nuclear charge was thought to be up to 100 kilotons; 10 times more powerful than last year’s bomb. As tensions mount once again between the US and North Korea, investors made their retreat to the safe havens (franc, yen, gold).
The euro reacted meekly to this retreat, since on the one hand, the Bloomberg article is piling pressure on buyers, but on the other, there is a national holiday in the US today, and the debt market and stock exchanges are closed.
The finance ministries of the US and Eurozone are discussing new sanctions on North Korea. The Pentagon is assessing it military options. Donald Trump tweeted that the US in considering “stopping all trade with any country doing business with North Korea”.
Since today is Monday, and the economic calendar is empty, the North Korea problem will be the key focus of financial markets. I’m forecasting a flat ranging from 1.1860 to 1.1920. I expect quotes to rise to 1.1920 in the European session, followed by a drop to 1.1860. If the market’s particularly thin, we could see the euro reach 1.1950. Here, we need to keep an eye on crosses with the euro and trading volume as we approach 1.1904 (45 degrees).
The dynamics from 1.1823 to 1.1980 represent a correction of the drop from 1.2070 to 1.1823. If the situation with North Korea continues to deteriorate, we could see the euro drop as far as 1.1750 before the ECB meeting on the 7th of September.