On Tuesday the 5th of December, trading on the euro/dollar pair closed down. I still can’t understand why the euro dropped from 1.1874 to 1.1801 against the dollar. At the time, US bond yields were trading down. This drop gathered pace during the US session. The US’s services PMI for November fell further than expected.
There are another two factors at play here that could have led investors to short the euro and buy dollars. The first is the US Congress’ approval of the tax reform bill. Secondly, the Senate’s banking committee has voted for Powell to chair the Federal Reserve.
Some believe that the market is undergoing a reversal in anticipation of Friday’s payrolls report. On Tuesday, trading on the euro/dollar closed at 1.1824.
Day’s news (GMT 3):
- 10:00 Germany: factory orders (Oct).
- 16:15 USA: ADP employment change (Nov).
- 16:30 Canada: labour productivity (Q3).
- 16:30 USA: nonfarm productivity (Q3), unit labour costs (Q3).
- 18:00 Canada: interest rate decision, BoC rate statement.
- 18:30 USA: EIA crude oil stocks change (1 Dec).
Fig 1. EURUSD hourly chart. Source: TradingView
My expectations of a rise for the euro on Tuesday did not come to pass. The euro bounced from the trend line and was then beaten back from the balance line by sellers. In the space of an hour the euro had returned to the balance line, and an hour later, broke through it.
Buyers tried to seize back control after the publication of a weak PPI report from ISM, but their efforts came to nothing. The drop intensified with the euro reaching 1.1801 as a breakout of the trend line is always a strong technical signal.
The rebound occurred at the 112th degree. At the time of writing, the euro is trading at 1.1841. There’s no forecast on the chart because I couldn’t determine which way the price will go today.
Now I’ll try to explain why it was so difficult to decide:
- The pattern of the last 120 bars (hourly timeframe) indicates the euro will rise to 1.1882.
- Hourly cycles point towards a decline to around yesterday’s low of 1.1801.
- The range 1.1844 – 1.1856 is a strong resistance. A lot of lines and levels intersect here.
- US 10Y bond yields are declining.
- Euro crosses are rising, expect against the yen.
- In today’s Asian session, the dynamics on the US dollar are mixed and it’s unclear how it will behave itself once trading opens in London.
Today’s key events for the foreign exchange market are the ADP employment report and the Bank of Canada’s interest rate decision.
Markets are expecting the NFP report to show a net increase in employment in November of around 200,000. The ADP report is expected to show an increase of 185,000 new jobs. If these figures fall in line with expectations, the reaction will be minimal. The ADP report has a short-term effect on currency markets when the figure is off by around 50,000.