On Friday the 6th of October, trading on the euro closed up. Before the US data was released, the euro/dollar pair was trading within a 30-pip range of 1.1686 to 1.1716. Volatility on the pair surged as the NFP report was being published. The rate initially reacted with a 40-pip drop to 1.1670, followed by a 69-pip surge to 1.1739. These sharp fluctuations continued for a couple of hours before the pair entered a sideways trend.
The number of new jobs created outside the agricultural sector in the US fell by 33,000 against a forecast of 90,000. The reading for July was revised from 189,000 to 138,000, and for August from 156,000 to 169,000. The aggregate revision comes to -38,000.
The workforce participation rate grew from 62.9% to 63.1%. Unemployment dropped from 4.4% to 4.2% (forecast: 4.4%). The average hourly earnings index in the US for June came to 0.5% (forecast: 0.3%, previous reading revised from 0.1% to 02%).
Traders focused on the more positive aspects of the report, but the dollar’s attack petered out regardless. News that North Korea is planning another missile test and that Hurricane Nate is approaching the Gulf of Mexico beat the dollar into submission.
Day’s news (GMT 3):
- 09:00 Germany: industrial production (Aug);
- 19:00 Eurozone: ECB's Lautenschläger Speech;
- n/a US: Columbus Day;
- n/a Canada: Thanksgiving Day.
Fig 1. EURUSD rate on the hourly. Source: TradingView
From the D2 line, the euro recovered to the balance line. During trading in Asia, the price jumped to 1.1748. In my forecast, I’m expecting a rebound to the LB balance line, with a subsequent jump to 1.1756. Given that the US and Canada have national holidays today, I’ve set a low target.
I tend not to pay attention to the news on Mondays as markets tend to ignore it. They need to digest the payrolls data and then decide how they will respond if the head and shoulders model start to be realised on the daily and weekly timeframes. For the formation to be complete, the right shoulder needs to form with a target of around 1.1880 by 23/10/17. By the end of October, downwards movement should resume. From 1.1880, we can expect the rate to drop.
There are two channels on the hourly timeframe; A-A and B-B. For the right shoulder to form, we need to break out of 1.1750 and 1.1790 levels. Exiting the B-B channel would open the way to 1.1880. If sellers manage to bring the rate down below 1.17 by Wednesday, we can expect the rate to continue falling.